Understanding the tax bracket in 2020.
In November 2019, the IRS has announced the annual inflation adjustments for the year 2020. These adjustments would include tax rate schedules and other tax changes. The adjustments of the tax year 2020 would be used while filing the tax returns in 2021. If you are planning for earning more money in 2020 or for changing your circumstances this year, then you should adjust your withholdings or plan for tweaking your payments made for estimated taxes.
Tax Brackets and Tax Rates.
The tax items for the year 2020 which would be maximum interest for the taxpayers are:-
- The rates for Standard deduction for those taxpayers who are married and are filing their taxes jointly are $24,800 for the year 2020. There has been a rise of $400 from the previous year. For those taxpayers who are single and those are married but filing their returns separately, the standard deduction rates have risen to $12,400 this year. For those who are filing their tax returns as ‘Heads of households’, the rate of Standard deduction will be $18,650 which is an increase of up to $300 in 2020.
- For the tax year 2020, the personal exemptions allowed are zero which remains the same as that of the year 2019. This elimination was a provision present in the Tax Cuts and Jobs Act.
- For the year 2020, for individual taxpayers, the top tax rates are 37% for the individual taxpayers whose income is more than $518,400 ($622,050 for the married couples who are filing returns jointly). The other rates can be listed below as:-
- 35% for those incomes which are over $207,350($414,700 for the couples who are filing their returns jointly)
- 32% for those incomes which are over $163,300($326,600 for the couples who are filing their tax returns jointly)
- 24% for those incomes which are over $85,525($171,050 for those couples who are filing their tax returns jointly)
- 22% for those incomes which are over $40,125($80,250 for those couples who are filing their tax returns jointly)
- 12% for those incomes which are over $9,875($19,750 for those couples who are filing their tax returns jointly
- The limitations on the itemized deductions for the tax year 2020 have been eliminated under the provisions of the Tax Cuts and Jobs Act.
- For the tax year 2020, the Alternative Minimum Tax Exemption amount is $72,900 and begins to phase out at $518,400. The exemption amount was $71,700 for the year 2019 which began to phase out at 510,300.
- For the tax year 2020, the maximum Earned Income Credit Amount for the taxpayers who have three or more than three qualifying children is $6,660.
- The limitation in a month for qualified transportation fringe benefits is $270 for the tax year 2020.
- For the tax year 2020, the limitations for the salary reductions of employees to make contributions to health spending arrangements is $2750 which is an increase of $50 from the limit of the last year.
- For those participants who have self-only coverage in a Medical Savings Account, for the tax year 2020 there must be an annual deductible that is more than $2,350 which remains the same for the tax year 2019 but must be less than $3,550, which is a rise of $50 from the previous year. In the tax year 2020, for the self-only coverage, the maximum out-of-pocket expense amount is $4,750. For the tax year 2020, the taxpayers who have family coverage, the annual deductible is $4,750 which has increased from $4,650 in 2019; but, this deductible must be less than$7,100, which is an increase of $100 from the limit that has been fixed for the tax year 2019. For family coverage, the limit for the out-of-pocket expenses is $8,650 which has increased by $100 from the tax year 2019.
- The Adjusted Gross Income (AGI) amount which is being used by the joint filers for determination in the reduction of the Lifetime Learning credit is $118,000for the year 2020.
- For the tax year 2020, the annual exclusion for gifts as determined by the IRS is $15,000.
- The Foreign Earned Income Exclusion is $107,600 for the tax year 2020.
- The estates of those decedents who die during the tax year 2020 will have an exclusion amount of $11,580,000 which is greater than the exclusion amount of $11,400,000 for the estates of decedents who died in the tax year 2019.
- For the tax year 2020, the maximum credit which is permissible for adoptions is the number of qualified adoption expenses up to $14,300.
So, these are the major tax rules which have been changed in the tax year 2020 which must be understood by the taxpayers.