US IncomeTax Rates and Brackets

2020 Inflation Adjustments

The Internal Revenue Service today announced the tax year 2020 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2019-44 (PDF) provides details about these annual adjustments.

The tax law change covered in the revenue procedure was added by the Taxpayer First Act of 2019, which increased the failure to file penalty to $330 for returns due after the end of 2019. The new penalty will be adjusted for inflation beginning with tax year 2021.

The tax year 2020 adjustments generally are used on tax returns filed in 2021.

The tax items for tax year 2020 of greatest interest to most taxpayers include the following dollar amounts:

• The standard deduction for married filing jointly rises to $24,800 for tax year 2020, up $400 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,400 in for 2020, up $200, and for heads of households, the standard deduction will be $18,650 for tax year 2020, up $300.
   
• 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: For tax year 2020, 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).

            The lowest rate is 10% for incomes of single individuals with incomes of $9,875 or less ($19,750 for married couples filing jointly).

• For 2020, as in 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
   
• The Alternative Minimum Tax exemption 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).
   
• The tax year 2020 maximum Earned Income Credit amount is $6,660 for qualifying taxpayers who have three or more qualifying children, up from a total of $6,557 for tax year 2019. The revenue procedure contains a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
   
• For tax year 2020, the monthly limitation for the qualified transportation fringe benefit is $270, as is the monthly limitation for qualified parking, up from $265 for tax year 2019.
   
• For the taxable years beginning in 2020, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements is $2,750, up $50 from the limit for 2019.
   
• 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.
   
• For tax year 2020, 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 for tax year 2019.
   
• For tax year 2020, the foreign earned income exclusion is $107,600 up from $105,900 for tax year 2019.
   
• 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.
   
• The annual exclusion for gifts is $15,000 for calendar year 2020, as it was for calendar year 2019.
• 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.

2019 Income Tax Brackets and Rates

In 2019, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows (Tables 1). The top marginal income tax rate of 37 percent will hit taxpayers with taxable income of $510,300 and higher for single filers and $612,350 and higher for married couples filing jointly.

Standard Deduction and Personal Exemption

The standard deduction for single filers will increase by $200 and by $400 for married couples filing jointly (Table 2).

The personal exemption for 2019 remains eliminated.

Table 2. 2019 Standard Deduction and Personal Exemption

Alternative Minimum Tax

The Alternative Minimum Tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two.

The AMT uses an alternative definition of taxable income called Alternative Minimum Taxable Income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, this exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent.

The AMT exemption amount for 2019 is $71,700 for singles and $111,700 for married couples filing jointly (Table 3).

Table 3. 2019 Alternative Minimum Tax Exemptions

In 2019, the 28 percent AMT rate applies to excess AMTI of $194,800 for all taxpayers ($97,400 for married couples filing joint returns).

AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2019, the exemption will start phasing out at $510,300 in AMTI for single filers and $1,020,600 for married taxpayers filing jointly (Table 4).

Table 4. 2019 Alternative Minimum Tax Exemption Phaseout Thresholds

Earned Income Tax Credit

The maximum Earned Income Tax Credit in 2019 for single and joint filers is $529, if the filer has no children (Table 5). The maximum credit is $3,526 for one child, $5,828 for two children, and $6,557 for three or more children. All these are relatively small increases from 2018.

Table 5. 2019 Earned Income Tax Credit Parameters

Child Tax Credit

The child tax credit totals at $2,000 per qualifying child and is not adjusted for inflation. However, the refundable portion of the Child Tax Credit, also known as the Additional Child Tax Credit, is adjusted for inflation. The Additional Child Tax Credit will remain at $1,400 for 2019.

Capital Gains

Long-term capital gains are taxed using different brackets and rates than ordinary income.

Qualified Business Income Deduction (Sec. 199A)

The Tax Cuts and Jobs Act includes a 20 percent deduction for pass-through businesses against up to $160,700 of qualified business income for unmarried taxpayers and $321,400 for married taxpayers (Table 7).

Table 7. 2019 Qualified Business Income Deduction Thresholds

Annual Exclusion for Gifts

In 2019, the first $15,000 of gifts to any person are excluded from tax. The exclusion is increased to $155,000 for gifts to spouses.

2018 Income Tax Brackets and Rates

2017 Income Tax Brackets and Rates

In 2017, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows (Table 1). The top marginal income tax rate of 39.6 percent will hit taxpayers with taxable income of $418,400 and higher for single filers and $470,700 and higher for married couples filing jointly.

Standard Deduction and Personal Exemption

The standard deduction for single filers will increase by $50 and $100 for married couples filing jointly.

The personal exemption for 2017 remains the same at $4,050.

PEP and Pease

PEP and Pease are two provisions in the tax code that increase taxable income for high-income earners. PEP is the phaseout of the personal exemption and Pease (named after former Senator Donald Pease) phases out the value of most itemized deductions once a taxpayer’s adjusted gross income reaches a certain amount.

The income threshold for both PEP and Pease will increase from last year to $261,500 for single filers and $318,800 for married couples filing jointly (Tables 5 and 6). PEP will end at $384,000 for singles and $436,300 for married couples filing jointly (both will increase from 2016), meaning that taxpayers with AGI above these limits will no longer benefit from personal exemptions.

Source: IRS.

Alternative Minimum Tax

The Alternative Minimum Tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two.

The AMT uses an alternative definition of taxable income called Alternative Minimum Taxable Income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, this exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent.

The AMT exemption amount for 2017 is $54,300 for singles and $84,500 for married couples filing jointly.

In 2017, the 28 percent AMT rate applies to excess AMTI of $187,800 for all taxpayers ($93,900 for married couples filing joint returns).

Under current law, AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2017, the exemption will start phasing out at $120,700 in AMTI for single filers and $160,900 for married taxpayers filing jointly.

Earned Income Tax Credit

2017’s maximum Earned Income Tax Credit for singles, heads of households, and joint filers is $510, if the filer has no children (Table 9). The credit is $3,400 for one child, $5,616 for two children, and $6,318 for three or more children. All of the aforementioned are relatively small increases from 2016.

2016 Tax Year

The top tax rate of 39.6% now applies to single taxpayers earning more than $415,050 ($466,950 for married taxpayers filing jointly)—up from the 2015 thresholds of $413,200 and $464,850, respectively.

Here are the other major adjustments:

If you’re single…

If you’re married filing jointly or are a surviving spouse…

If you’re a head of household…

For 2016 the standard deduction for heads of household will also rise to $9,300 (up from $9,250 in 2015) but the other standard deduction amounts will remain the same: $6,300 for singles and $12,600 for married couples filing jointly.

Personal exemptions will be $4,050 in 2016, up from $4,000 in 2015. The Alternative Minimum Tax exemption amount in 2016 is $53,900 for singles and $83,800 for married couples filing jointly (up by $300 and $400, respectively, compared to 2015 exemptions).

Other key changes include:

• The maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have 3 or more qualifying children in 2016, up from $6,242 for 2015.
• The monthly limit for the transportation benefits remains $130 for transportation, but rises to $255 for qualified parking in 2016, up from $250 for tax year 2015.
• The foreign earned income exclusion is $101,300 for 2016, up from $100,800 in 2015.

Net Investment Income Tax

A 3.8 percent Net Investment Income Tax (NIIT) applies to individuals, estates, and trusts that have net investment income above applicable threshold amounts.

Individuals

In the case of an individual, the NIIT is 3.8 percent on the lesser of:

• the net investment income, or
• the excess of modified adjusted gross income over the following threshold amounts:
  • $250,000 for married filing jointly or qualifying widow(er) with dependent child
  • $125,000 for married filing separately
  • $200,000 in all other cases

Estates & Trusts

In the case of an estate or trust, the NIIT is 3.8 percent on the lesser of:

• (A) the undistributed net investment income, or
• (B) the excess (if any) of:
  • the adjusted gross income over the dollar amount at which the highest tax bracket begins for an estate or trust for the tax year. (For estates and trusts, the 2015 threshold is $12,300)

Additional Medicare Tax

A 0.9% Additional Medicare Tax applies to Medicare wages, self-employment income, and railroad retirement (RRTA) compensation that exceed the following threshold amounts based on filing status:

• $250,000 for married filing jointly;
• $125,000 for married filing separately; and
• $200,000 for all other taxpayers.

This additional tax is used to help fund the Affordable Care Act tax provisions, including the Premium Tax Credit.

Combine Medicare wages and self-employment income to determine if income exceeds the threshold. Do not consider a self-employment loss for purposes of this tax. Compare Railroad retirement (RRTA) compensation separately to the threshold.

All Medicare wages, railroad retirement (RRTA) compensation, and self-employment income subject to Medicare Tax are subject to Additional Medicare Tax, if paid in excess of the applicable threshold for the taxpayer’s filing status. For more information on what wages are subject to Medicare Tax, see the chart on Special Rules for Various Types of Services and Payments in Section 15 of Publication 15, (Circular E), Employer’s Tax Guide.