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IRS provides tax inflation adjustments for tax year 2020

Posted on November 13, 2019

The annual inflation adjustments for tax year 2020 have recently been announced by the IRS. These adjustments include more than 60 tax provisions, and are generally used on tax returns filed in 2021 for the tax year 2020. That said, the increases are helpful information to have for planning for the coming year.

Here are 2020 tax items of greatest interest to most taxpayers, according to the CPAs at Teipen Selanders Poynter & Ayres:

  • The Standard Deduction for married filing jointly rises to $24,800 for 2020, up $400 from the prior year.
    • For single taxpayers and married individuals filing separately, the standard deduction rises to $12,400, up $200.
    • For heads of households, the 2020 standard deduction will be $18,650, up $300.
  • The Personal Exemption for remains at 0, as it was for 2019 (eliminated as a provision in the Tax Cuts and Jobs Act).
  • Marginal Rates: The 2020 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).
  • Once again in 2020, there is no limitation on itemized deductions, (again, 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.
    • $111,700, for married couples filing jointly for whom the exemption began to phase out at $1,020,600.
  • The 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.
  • For tax year 2020, the monthly limitation for the qualified transportation fringe benefit is $270 (monthly limitation for qualified parking), up from $265 from 2019.
  • The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements is $2,750, up $50 from 2019.
  • Adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $118,000, up from $116,000.
  • 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. The annual exclusion for gifts is $15,000 for calendar year 2020, as it was for calendar year 2019.
  • The maximum Adoption Credit allowed for qualified 2020 adoptions is now $14,300, up from $14,080 last year.

There are many other details about these IRS rate changes available on IRS.gov. Find them at Revenue Procedure 2019-44. Or, call us with your questions.