The IRS has recently published their inflation adjustments for various tax items for the 2020 tax year. Below is an overview of the adjustments that apply to a wide range of taxpayers.
1. In 2020, the standard deduction for married filing jointly will increase $400 to $24,800. For single taxpayers and married individuals filing separately, the standard deduction will increase $200 to $12,400. And for heads of households the standard deduction will increase $300 to $18,650.
2. The personal exemption will remain at 0, as it was for the 2019 tax year. This elimination of the personal exemption was a provision of the Tax Cuts and Jobs Act.
3. In regards to marginal rates, the top tax rate will remain at 37% for individual single taxpayers with incomes higher than $518,400 ($622,050 for married couples filing jointly). Additional rates are as follows:
- 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)
- The lowest rate is 10% for single individuals with incomes of $9,875 or less ($19,750 for married couples filing jointly)
4. As in 2019 and 2018, there will be no limitation on itemized deductions in the 2020 tax year, as that limitation was eliminated by the Tax Cuts and Jobs Act.
5. The alternative minimum tax exemption amount for tax year 2020 is $72,900, and it 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).
6. The new maximum earned income credit amount will be $6,660 for qualifying taxpayers who have three or more qualifying children, up from a total of $6,557 from tax year 2019.
7. The qualified transportation fringe benefit now has a monthly limitation of $270. The monthly limitation for qualified parking is the same, up from $265 from tax year 2019.
8. The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements is $2,750, up $50 from the limit for 2019.
9. The annual exclusion for gifts will be $15,000, which is the same as it was in the 2019 tax year.
We recommend that you discuss subtleties with one of our tax professionals to receive a more comprehensive understanding how these inflation adjustments could affect you and/or your business in the year to come.
James Mahoney
CPA Managing Partner
