Tax Changes for 2020 You Need to Know

The Internal Revenue Service released its annual inflation adjustments for tax year 2020. This includes more than 60 tax provisions as well as tax rate schedules and other changes.

Standard Deduction:

The standard deduction for married filing jointly increases to $24,800 for tax year 2020, up $400.

For single taxpayers and married individuals filing separately, the standard deduction rises to $12,400 in for 2020, up $200. For heads of households, the standard deduction will increase $300 to $18,650 for tax year 2020.

Personal Exemption:

The personal exemption for tax year 2020 remains at 0, as it was for 2019. This elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.

Marginal Rates:

The top tax rate remains 37% for individual single taxpayers with incomes greater than $518,400 ($622,050 for married couples filing jointly).

The other rates are:

  • 35%, for incomes over $207,350 ($414,700 for married couples filing jointly)
  • 32% for incomes over $163,300 ($326,600 for married couples filing jointly)
  • 24% for incomes over $85,525 ($171,050 for married couples filing jointly)
  • 22% for incomes over $40,125 ($80,250 for married couples filing jointly)
  • 12% for incomes over $9,875 ($19,750 for married couples filing jointly)
  • 10% for incomes of $9,875 or less ($19,750 for married couples filing jointly)

Itemized Deductions:

There is no limitation on itemized deductions for 2020. The limitation was eliminated by the Tax Cuts and Jobs Act.

Alternative Minimum Tax Exemption:

The amount for tax year 2020 is $72,900 and begins to phase out at $518,400 ($113,400 for married couples filing jointly for whom the exemption begins to phase out at $1,036,800). The 2019 exemption amount was $71,700 and began to phase out at $510,300 ($111,700, for married couples filing jointly for whom the exemption began to phase out at $1,020,600).

Maximum Earned Income Credit Amount:

The amount for tax year 2020 is $6,660 for qualifying taxpayers who have three or more qualifying children, up from a total of $6,557 from last year.

Qualified Transportation Fringe Benefit:

The monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking is $270, up from $265 for tax year 2019.

Flexible Spending Arrangement:

The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements is $2,750, up $50 from last year.

Medical Savings Account:

For tax year 2020, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,350, the same as for tax year 2019; but not more than $3,550, an increase of $50 from tax year 2019. For self-only coverage, the maximum out-of-pocket expense amount is $4,750, up $100 from 2019. For tax year 2020, participants with family coverage, the floor for the annual deductible is $4,750, up from $4,650 in 2019; however, the deductible cannot be more than $7,100, up $100 from the limit for tax year 2019. For family coverage, the out-of-pocket expense limit is $8,650 for tax year 2020, an increase of $100 from tax year 2019.

Lifetime Learning Credit:

The adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $118,000, up from $116,000.

Foreign Earned Income:

The foreign earned income exclusion is $107,600 up from $105,900 for tax year 2019.

Estate Tax:

Estates of decedents who die during 2020 have a basic exclusion amount of $11,580,000, up from a total of $11,400,000 for estates of decedents who died in 2019.

Gift Tax:

The annual exclusion for gifts is $15,000 for calendar year 2020, as it was for calendar year 2019.

Adoption Credit:

The maximum credit allowed for adoptions for tax year 2020 is the amount of qualified adoption expenses up to $14,300, up from $14,080 for 2019.

 

Are you unclear how these adjustments will affect your tax filings for 2020? Contact us to discuss your specific situation.