As tax season begins, it's wise to review the Internal Revenue Service numbers you need to know for 2020. In some cases, the deduction amounts remain the same as for 2019, such as the case with medical and dental expenses, state and local sales, and the percentage limit for charitable cash donations made to public charities. But standard deductions, income thresholds for tax brackets, certain tax credits, and retirement savings limits have increased.
- The standard deduction for those married filing jointly rose 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 from the year prior.
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, which is a modest bump 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 as follows:
- 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. For married individuals filing jointly, the combined income may not exceed $19,750.
For those filing as head of household (HOH), 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 now $85,501 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 to the following levels:
- 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 from 2019. 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 phasing out at $518,400. For married couples filing jointly, the AMT exemption amount is $113,400, which begins phasing 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, up from $19,000 in 2019. The catch-up contribution limit for employees age 50 and older increased to $6,500, up 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.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. During the year, if either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced or phased out. If neither the taxpayer nor his or her spouse is covered by an employer-sponsored retirement plan, the phase-outs of the deduction do not apply. Phase-out ranges for 2020 are as follows:
- 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 who is not covered by a workplace retirement plan, but who is 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 (also referred to as 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 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 exceed $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, the same as it was for calendar 2019.
The Bottom Line
The inflation adjustments of the IRS are meant to ease federal taxes for taxpayers, so it pays to know the latest figures, which you can use to thoughtfully plan for the 2020 tax year.