With a new decade approaching, the IRS announced its annual adjustments for many tax provisions to adjust for inflation.
The tax items that will apply to tax year 2020 that will be of most interest to taxpayers include the following:
- The standard deduction for married filing joint increases to $24,800 for tax year 2020. For single and married filing separate, the standard deduction will increase to $12,400. For head of household, it will rise by $300, increasing the amount to $18,650.
- The personal exemption still does not apply for 2020, as it was eliminated in the Tax Cuts and Jobs Act.
- There are also changes to the marginal rates. The top tax rate remains the same at 37% with incomes greater than $518,400 for single taxpayers and $622,050 for married filing joint. The other rates are 35% for incomes over $207,350; 32% for incomes over $163,300; 24% for incomes over $85,525; 22% for incomes over $40,125; 12% for incomes over $9,875; and the lowest being 10% for incomes of $9,875 or less. Each amount can be doubled to find the threshold for joint filers.
- Similar to 2019 and 2018, there is no limitation on itemized deductions in 2020.
- The Alternative Minimum Tax increased to $72,900 and begins to phase out at $518,400 for tax year 2020.
- The maximum earned income credit amount is $6,660 in 2020 for qualifying taxpayers who have three or more children.
- The monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking is $270.
- The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements has increased by $50, making the limitation $2,750 for tax year 2020.
- Those who participate in a Medical Savings Account and have self-only coverage, the plan must have an annual deductible that is not below $2,350, but no higher than $3,550. The maximum out-of-pocket expense is $4,750, an increase of $100 from 2019. Participants with family coverage, the minimum annual deductible is $4,750 but cannot exceed $7,100. The out-of-pocket expense limit is $8,650 for 2020, an increase of $100 from 2019.
- The adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $118,000 for 2020.
- The foreign earned income exclusion has increased to $107,600, up from $105,900.
- The maximum credit allowed for adoptions for tax year 2020 is the amount of qualified adoption expenses up to $14,300.
To read more, check out this article that expands on the definition of earned income.
With these being only a select few of the adjustments that have been impacted by inflation, be sure to see your Henry+Horne tax advisor with all your questions. We are ready and eager to assist you.