Tax Changes That Came Into Effect January 1, 2020

tax changes

The Internal Revenue Service (IRS) announced the official opening day of the 2020 tax season for individuals: January 27. You have until April 15 to file your taxes and here is what to look out for:

1. Higher Income Brackets

Income tax brackets are somewhat higher for the tax year 2019 than they were for 2018 on account of inflation.

According to the IRS, the tax rates and corresponding income brackets for 2019 are as follows for folks whose tax filing status is single:

  • 37% tax rate: Applies to incomes of more than $510,300
  • 35%: More than $204,100 but not more than $510,300
  • 32%: More than $160,725 but not more than $204,100
  • 24%: More than $84,200 but not more than $160,725
  • 22%: More than $39,475 but not more than $84,200
  • 12%: More than $9,700 but not more than $39,475
  • 10%: $9,700 or less

For complete 2019 tax rate tables for all tax filing statuses, see IRS Revenue Procedure 2018–57. They start on Page 8 of the document. If you want to compare them with the 2018 tables, see Internal Revenue Bulletin 2018–10.

2. Higher standard deductions

Standard deductions are also higher for the tax year 2019 on account of inflation. According to the IRS, they are:

  • Married filing jointly: $24,400 (up by $400 from last year)
  • Married filing separately: $12,200 (up $200)
  • Head of household: $18,350 (up $350)
  • Single: $12,200 (up $200)

The standard deduction reduces the amount of your income that’s subject to federal taxes. So, if a married couple filing a joint tax return are eligible for and choose to take the standard deduction on their 2019 return, they would not be taxed on the first $24,400 of their taxable income from 2019.

3. Higher HSA contribution limits

The 2019 contribution limits for people who are eligible for an HSA (Health savings accounts) and have the following types of high-deductible health insurance policies are:

  • Self-only coverage: $3,500 (up from $3,450 for 2018)
  • Family coverage: $7,000 (up from $6,900)

HSA limits also will rise again for tax year 2020.

4. No individual mandate penalty

Most of the tax code changes from the Tax Cuts and Jobs Act of 2017 came into play in 2018. One exception is the change to the shared responsibility payment, which took effect in 2019.

The shared responsibility payment — often referred to as the individual mandate penalty — had applied to people who were required by law to have health insurance under the Affordable Care Act but who didn’t get covered or exempt.

If you owed the penalty, it was due on your taxes.

Starting with 2019, however, there is no longer a penalty. If you didn’t have health insurance in 2019, you will not owe the penalty when you file your taxes in 2020.

5. Higher retirement account contribution limits

In 2019, you also could put more cash in various types of retirement accounts.

Contributions that you made for tax year 2019 to such accounts — including traditional 401(k) plans and individual retirement accounts (IRAs) — could be deductible on your next tax return.

The 2019 contribution limits are:

  • 401(k) base contribution: $19,000 (up from $18,500 in 2018)
  • 401(k) catch-up contribution (for taxpayers age 50 and older): additional $6,000 (unchanged)
  • IRA base contribution: $6,000 (up from $5,500)
  • IRA catch-up contribution (for taxpayers age 50 and older): additional $1,000 (unchanged)

Some contribution limits will also rise again for tax year 2020 — the one for which your return is due by April 2021.

6. No Alimony Deduction

Beginning Jan. 1, 2019, alimony or separate maintenance payments are not deductible from the income of the payer spouse, or includable in the income of the receiving spouse, if made under a divorce or separation agreement executed after Dec. 31, 2018.

So, a spouse who got divorced in 2019 and paid alimony in 2019 cannot write the payments off on a tax return in 2020. Former spouses who got divorced in 2019 and received alimony that year cannot count the payments as income.

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