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 lowest rate is 10% for incomes of single individuals with incomes of $9,875 or less ($19,750 for married couples filing jointly).
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.
Rate | For Unmarried Individuals, Taxable Income Over | For Married Individuals Filing Joint Returns, Taxable Income Over | For Heads of Households, Taxable Income Over |
---|---|---|---|
10% | $0 | $0 | $0 |
12% | $9,700 | $19,400 | $13,850 |
22% | $39,475 | $78,950 | $52,850 |
24% | $84,200 | $168,400 | $84,200 |
32% | $160,725 | $321,450 | $160,700 |
35% | $204,100 | $408,200 | $204,100 |
37% | $510,300 | $612,350 | $510,300 |
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
Filing Status | Deduction Amount |
---|---|
Single | $12,200 |
Married Filing Jointly | $24,400 |
Head of Household | $18,350 |
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
Filing Status | Exemption Amount |
---|---|
Unmarried Individuals | $71,700 |
Married Filing Jointly | $111,700 |
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
Filing Status | Threshold |
---|---|
Unmarried Individuals | $510,300 |
Married Filing Jointly | $1,020,600 |
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
Filing Status | No Children | One Child | Two Children | Three or More Children | |
---|---|---|---|---|---|
Single or Head of Household | Income at Max Credit | $6,920 | $10,370 | $14,570 | $14,570 |
Maximum Credit | $529 | $3,526 | $5,828 | $6,557 | |
Phaseout Begins | $8,650 | $19,030 | $19,030 | $19,030 | |
Phaseout Ends (Credit Equals Zero) | $15,570 | $41,094 | $46,703 | $50,162 | |
Married Filing Jointly | Income at Max Credit | $6,920 | $10,370 | $14,570 | $14,570 |
Maximum Credit | $529 | $3,526 | $5,828 | $6,557 | |
Phaseout Begins | $14,450 | $24,820 | $24,820 | $24,820 | |
Phaseout Ends (Credit Equals Zero) | $21,370 | $46,884 | $52,493 | $55,952 |
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.
Long-term capital gains are taxed using different brackets and rates than ordinary income.
For Unmarried Individuals, Capital Gains Over | For Married Individuals Filing Joint Returns, Capital Gains Over | For Heads of Households, Capital Gains Over | |
---|---|---|---|
0% | $0 | $0 | $0 |
15% | $39,375 | $78,750 | $52,750 |
20% | $434,550 | $488,850 | $461,700 |
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
Filing Status | Threshold |
---|---|
Unmarried Individuals | $160,700 |
Married Filing Jointly | $321,400 |
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.
Single Taxable Income Brackets and Rates, 2017
|
||
Rate |
Taxable Income Bracket |
Tax Owed |
10% |
$0 to $9,325 |
10% of Taxable Income |
15% |
$9,325 to $37,950 |
$932.50 plus 15% of the excess over $9325 |
25% |
$37,950 to $91,900 |
$5,226.25 plus 25% of the excess over $37,950 |
28% |
$91,900 to $191,650 |
$18,713.75 plus 28% of the excess over $91,900 |
33% |
$191,650 to $416,700 |
$46,643.75 plus 33% of the excess over $191,650 |
35% |
$416,700 to $418,400 |
$120,910.25 plus 35% of the excess over $416,700 |
39.60% |
$418,400+ |
$121,505.25 plus 39.6% of the excess over $418,400 |
Married Filing Joint Taxable Income Brackets and Rates, 2017
|
||
Rate |
Taxable Income Bracket |
Tax Owed |
10% |
$0 to $18,650 |
10% of taxable income |
15% |
$18,650 to $75,900 |
$1,865 plus 15% of the excess over $18,650 |
25% |
$75,900 to $153,100 |
$10,452.50 plus 25% of the excess over $75,900 |
28% |
$153,100 to $233,350 |
$29,752.50 plus 28% of the excess over $153,100 |
33% |
$233,350 to $416,700 |
$52,222.50 plus 33% of the excess over $233,350 |
35% |
$416,700 to $470,700 |
$112,728 plus 35% of the excess over $416,700 |
39.60% |
$470,700+ |
$131,628 plus 39.6% of the excess over $470,700 |
Head of Household Taxable Income Brackets and Rates, 2017
|
||
Rate |
Taxable Income Bracket |
Tax Owed |
10% |
$0 to $13,350 |
10% of taxable income |
15% |
$13,350 to $50,800 |
$1,335 plus 15% of the excess over $13,350 |
25% |
$50,800 to $131,200 |
$6,952.50 plus 25% of the excess over $50,800 |
28% |
$131,200 to $212,500 |
$27,052.50 plus 28% of the excess over $131,200 |
33% |
$212,500 to $416,700 |
$49,816.50 plus 33% of the excess over $212,500 |
35% |
$416,700 to $444,500 |
$117,202.50 plus 35% of the excess over $416,701 |
39.60% |
$444,500+ |
$126,950 plus 39.6% of the excess over $444,550 |
Source: IRS. |
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.
2017 Standard Deduction and Personal Exemption
|
|
Filing Status |
Deduction Amount |
Single |
$6,350 |
Married Filing Jointly |
$12,700 |
Head of Household |
$9,350 |
Personal Exemption |
$4,050 |
Source: IRS. |
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.
2017 Pease Limitations on Itemized Deductions
|
|
Filing Status |
Income |
Single |
$261,500 |
Married Filing Jointly |
$318,800 |
Head of Household |
$287,650 |
Married Filing Separately |
$156,900 |
Source: IRS. |
2017 Personal Exemption Phaseout |
||
Filing Status |
Phaseout Begins |
Phaseout Complete |
Single |
$261,500 |
$384,000 |
Married Filing Jointly |
$313,800 |
$436,300 |
Head of Household |
$287,650 |
$410,150 |
Married Filing Separately |
$156,900 |
$218,150 |
Source: IRS.
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.
2017 Alternative Minimum Tax Exemptions
|
|
Filing Status |
Exemption Amount |
Single |
$54,300 |
Married Filing Jointly |
$84,500 |
Married Filing Separately |
$42,250 |
Trusts & Estates |
$24,100 |
Source: IRS. |
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.
2017 Alternative Minimum Tax Exemption Phaseout Thresholds |
|
Filing Status |
Threshold |
Single |
$120,700 |
Married Filing Jointly |
$160,900 |
Married Filing Separately, Estates and Trusts |
$80,450 |
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 your taxable income is… | You owe… |
---|---|
$0-$9,275 | 10% of your taxable income |
$9,275-$37,650 | $927.50 + 15% of anything over $9,275 |
$37,650-$91,150 | $5,183.75 + 25% of anything over $37,650 |
$91,150-$190,150 | $18,558.75 + 28% of anything over $91,150 |
$190,150-$413,350 | $46,278.75 + 33% of anything over $190,150 |
$413,350-$415,050 | $119,934.75 + 35% of anything over $413,350 |
$415,050 and higher | $120,529.75 + 39.6% of anything over $415,050 |
If you’re married filing jointly or are a surviving spouse…
If your taxable income is… | You owe… |
---|---|
$0-$18,550 | 10% of your taxable income |
$18,550-$75,300 | $1,855 + 15% of anything over $18,550 |
$75,300-$151,900 | $10,367.50 + 25% of anything over $75,300 |
$151,900-$231,450 | $29,517.50 + 28% of anything over $151,900 |
$231,450-$413,350 | $51,791.50 + 33% of anything over $231,450 |
$413,350-$466,950 | $111,818.50 + 35% of anything over $413,350 |
$466,950 and higher | $130,578.50 + 39.6% of anything over $466,950 |
If you’re a head of household…
If your taxable income is… | You owe… |
---|---|
$0-$13,250 | 10% of your taxable income |
$13,250-$50,400 | $1,325 + 15% of anything over $13,250 |
$50,400-$130,150 | $6,897.50 + 25% of anything over $50,400 |
$130,150-$210,800 | $26,835 + 28% of anything over $130,150 |
$210,800-$413,350 | $49,417 + 33% of anything over $210,800 |
$413,350-$441,000 | $116,258.50 + 35% of anything over $413,350 |
$441,000 and higher | $125,936 + 39.6% of anything over $441,000 |
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:
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:
Estates & Trusts
In the case of an estate or trust, the NIIT is 3.8 percent on the lesser of:
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:
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.