Tax season looms, and here are the numbers from the Internal Revenue Service for the tax year that begins on Jan. 1.
Note that the new IRS numbers to use to prepare 2020 federal tax returns in 2021 are not the ones to use for federal taxes filed in April 2020. In April 2020, you will be filing 2019 taxes.
Some deductions, such as those for medical and dental expenses, state and local sales, and the percentage limit for charitable cash donations to public charities will remain the same in 2020 as they were in 2019. However, standard deductions, income thresholds for tax brackets, certain tax credits, and retirement savings limits did increase.
- The standard deduction for those married filing jointly rises to $24,800 for tax year 2020, up $400 from 2019.
- Income ranges for determining eligibility to make deductible contributions to traditional IRAs and to contribute to Roth IRAs have all increased for 2020.
- Estates of decedents who die during 2020 have a basic exclusion amount of $11.58 million, up from $11.4 million.
Brackets and Rates
For tax year 2020, the top tax rate remains 37% for individual taxpayers filing as single and with income greater than $518,400, up from $510,300 for 2019. The income threshold for this rate will be $622,050 for married couples filing jointly (MFJ) and $311,025 for married individuals filing separately (MFS).
Income ranges of other rates up to the next-highest threshold are:
- 35% for single and MFS income exceeding $207,350 ($414,700 for MFJ);
- 32% for single and MFS income exceeding $163,300 ($326,600 for MFJ);
- 24% for single and MFS income exceeding $85,525 ($171,050 for MFJ);
- 22% for single and MFS income exceeding $40,125 ($80,250 for MFJ); and
- 12% for single and MFS income exceeding $9,875 ($19,750 for MFJ).
The lowest rate is 10% for single individuals and married couples filing separately whose income is $9,875 or less ($19,750 for married individuals filing jointly).
For those using the head of household (HOH) filing status, the income thresholds are the same as rates for singles in the 37%, 35%, and 32% brackets.
In other HOH brackets, the income thresholds are $85,501 (up from $84,201 in 2019) to $163,300 in the 24% bracket; $53,701 to $85,500 in the 22% bracket; $14,101 to $53,700 in the 12% bracket; and up to $14,100 in the 10% bracket.
Income thresholds for long-term capital gains rates also increased:
- 0% for single and MFS income up to $40,000 (from $39,375 in 2019); up to $80,000 for MFJ; and up to $53,600 for HOH;
- 15% for single income $40,001 to $441,450; $80,001 to $496,600 for MFJ; $40,001 to $248,300 for MFS; and $53,601 to $469,050 for HOH;
- 20% for single income exceeding $441,450; exceeding $496,600 for MFJ; exceeding $248,300 for MFS; and exceeding $469,050 for HOH.
The standard deduction for married filing jointly rises to $24,800 for tax year 2020, up $400 from 2019. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,400 for 2020, up $200. For heads of households, the standard deduction will be $18,650 for tax year 2020, up $300.
The alternative minimum tax (AMT) exemption amount for single filers for tax year 2020 is $72,900 (up $1,200 from 2019) and begins to phase out at $518,400. For married couples filing jointly the AMT exemption amount is $113,400 and begins to phase out at $1,036,800.
The contribution limit for employees who participate in employer retirement plans such as 401(k)s, 403(b)s, most 457 plans, and the federal government’s Thrift Savings Plan (TSP) has been increased to $19,500 from $19,000 in 2019. The catch-up contribution limit for employees age 50 and older increases to $6,500, from $6,000 in 2019.
The contribution limit for SIMPLE retirement accounts for 2020 has been raised to $13,500, up from $13,000 for 2019.
The income ranges for determining eligibility to make deductible contributions to traditional individual retirement accounts (IRAs), to contribute to Roth IRAs, and to claim the Saver’s Credit all have been increased for 2020.
Standard deductions, income thresholds for tax brackets, certain tax credits, and retirement savings limits have all modestly increased.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If, during the year, either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced or phased out. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Phase-out ranges for 2020:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000, up from $64,000 to $74,000.
- For MFJ, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000.
- For an IRA contributor not covered by a workplace retirement plan and married to someone who is covered, the deduction is phased out if the couple's income is between $196,000 and $206,000, up from $193,000 and $203,000.
For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up $2,000 from 2019. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up $3,000.
The income limit for the saver’s credit (aka the retirement savings contributions credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000 in 2019; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.
The tax year 2020 maximum earned income credit (EIC) is $6,660 for qualifying taxpayers who have three or more qualifying children, up from a total of $6,557 for 2019.
For tax year 2020, the modified adjusted gross income (MAGI) amount used by married joint filers to determine the reduction in the lifetime learning credit is $118,000 and phases out at $138,000, up from $116,000-$136,000 for tax year 2019. For single filers and heads of households, the MAGI range is $59,000-$69,000 for 2020, up from $58,000-$68,000 in 2019. You can't claim the credit if you are a married individual filing separately.
For the taxable years beginning in 2020, the dollar limit for employee salary reductions for contributions to a health flexible spending account (FSA) is $2,750, up $50 from the limit for 2019.
For tax year 2020, participants who have self-only coverage in a health savings account (HSA), 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 participants with family coverage, the floor for the annual deductible is $4,750, up from $4,650 in 2019; 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 2019.
Estates and Gifts
Estates of decedents who die during 2020 have a basic exclusion amount of $11.58 million, up from $11.4 million for estates of decedents who died in 2019.
The annual exclusion for gifts is $15,000 for calendar 2020, as it was for calendar 2019.
The Bottom Line
The inflation adjustments of the IRS are meant to make federal taxes just a little easier for taxpayers, so it pays to know all the latest figures. Use them to plan for the 2020 tax year and track income, retirement savings and expenditures throughout 2020.