Don’t wait until 2021 to start thinking about your 2020 income taxes. The IRS rules and changes that went into effect on January 1st are already starting to impact your tax bill and that much-desired refund. Some of these changes are the result of inflation. Others are elements of the 2017 Tax Cut and Jobs Act are just now coming into play.
Here are five things you should know about your income taxes in 2020.
1. Income Bracket Changes
This year, as in years past, inflation is driving income tax brackets to higher income levels. For married couples filing jointly, the brackets are as follows: 10% tax rate: Not over $19,750 12%: Over $19,751 but no more than $80,250 22%: Over $80,251 but no more than $171,050 24%: Over $171,051 but no more than $326,600 32%: Over $326,601 but no more than $414,700 35%: Over $414,701 but no more than $622,050 37%: Over $622,051 or more
For information about other tax brackets, see this IRS guidance.
2. Standard Deductions
In addition to higher tax brackets, inflation is also increasing standard deductions. By several hundreds of dollars. They now include:
For single taxpayers: $12,400 Head of household: $18,650 Married filing separately: $12,400 Married filing jointly: $24,800
3. Higher Tax-Deferred Contribution Limits
If you’re saving for the future, you can save even more. Cost-of-living adjustments are raising contribution limits for both retirement and health savings accounts (HSAs) in 2020.
If you participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan, you can sock away an extra $500 this year — up to $19,500. And if you’re over 50, your catch up contribution also rises $500 to $6,500.
You can read the specifics of a 401(k) contribution limit here and HSAs here.
4. No More Alimony Deduction
This change from the 2017 Tax Cuts and Jobs Act goes into effect this year. If you are divorced or legally separated from your spouse in 2019, the payments cannot be deducted when you pay your taxes in 2020. Also, individuals who receive alimony payments do not report them as a source of income.
5. No Insurance Penalty
This year marks the end of the “Individual Mandate” of the Affordable Care Act. At the federal level, this means you will not have to pay a tax penalty if you do not have health insurance. However, several states have their own health insurance mandate. As of January 7, they include Massachusetts, New Jersey, Vermont, California, Rhode Island and Washington DC. Residents of these states will have to pay a penalty if they do not have health insurance.
Did you know that the Alliance’s Plus Plan includes free online tax advice. If you’re a member, you have unlimited access to a CPA for answers to all of your tax questions Let us know if you have any questions or concerns about the changes to your 2020 taxes. For more information about this benefit plan or to become a member, contact us today.