The IRS has released the annual inflation adjustments for 2020 for over 60 tax provisions, including the income tax rate tables. The IRS issues these cost-of-living adjustments (COLAs) each year to reflect inflation. The adjustments apply to tax years beginning in 2020, and are generally used on returns that will be filed in 2021. Some adjustments apply to transactions or events occurring in calendar year 2020.
2020 Top Income Tax Bracket
For 2020, the highest income tax bracket of 37 percent applies when taxable income is over:
- $622,050 for married individuals filing jointly and surviving spouses,
- $518,400 for single individuals and heads of households,
- $311,025 for married individuals filing separately, and
- $12,950 for estates and trusts.
2020 Standard Deduction
The standard deduction for 2020 is:
- $24,800 for married individuals filing jointly and surviving spouses,
- $18,650 for heads of households, and
- $12,400 for single individuals and married individuals filing separately.
For an individual who could be claimed as a dependent by another taxpayer, the standard deduction is limited to the greater of (1) $1,100, or (2) the sum of $350 plus the dependent’s earned income.
Individuals who are blind or at least 65 years old get an additional standard deduction of:
- $1,300 for married taxpayers and surviving spouses, or
- $1,650 for other individuals.
2020 AMT Exemption
The alternative minimum tax (AMT) exemption amounts for 2020 are:
- $113,400 for married individuals filing jointly and surviving spouses,
- $72,900 for single individuals and heads of households,
- $56,700 for married individuals filing separately, and
- $25,400 for estates and trusts.
The exemption amounts begin to phase out in 2020 when alternative minimum taxable income (AMTI) exceeds:
- $1,036,800 for married individuals filing jointly and surviving spouses,
- $518,400 for single individuals, heads of households, and married individuals filing separately, and
- $84,800 for estates and trusts.
The 2020 AMT exemption amount of a child subject to the “kiddie tax” rules cannot be more than the sum of (1) the child’s earned income for the year plus (2) $7,900.
Medical Savings Accounts
For those with Archer medical savings accounts:
- For self-only coverage in 2020, the minimum annual deductible is $2,350, the maximum annual deductible is $3,550, and the maximum annual out-of-pocket expense amount is $4,750.
- For family coverage in 2020, the minimum annual deductible is $4,750, the maximum annual deductible is $7,100, and the maximum annual out-of-pocket expense amount is $8,650.
Expensing Section 179 Property
For tax years beginning in 2020, taxpayers can expense up to $1,040,000 in section 179 property, and the cost of any sport utility vehicle that may be taken into account cannot exceed $25,900. However, the expensing limit is reduced when the cost of section 179 property placed in service during the year exceeds $2,590,000.
Estate and Gift Tax Adjustments
The following inflation adjustments apply to federal estate and gift taxes in 2020:
- the federal gift tax exclusion is $15,000 per donee, or $157,000 for gifts to a spouse who is not a U.S. citizen;
- the federal estate tax basic exclusion is $11,580,000;
- the maximum reduction for real property under the special use valuation method is $1,180,000.
Other Inflation Adjustments
Other selected tax items adjusted for inflation for 2020 include the following:
- The maximum adoption credit for 2020 is $14,300.
- The adjusted gross income amount used to determine the reduction in the Lifetime Learning Credit for 2020 is $118,000 for joint filers, $59,000 for other taxpayers.
- The 2020 maximum earned income credit for qualifying taxpayers is $6,660 for three or more qualifying children, $5,920 for two qualifying children, $3,584 for one qualifying child, and $538 for those with no qualifying children.
- The 2020 dollar limit for employee salary reductions for contributions to health flexible spending arrangements is $2,750.
- The monthly limitation in 2020 for the qualified transportation fringe benefit is $270, and the monthly limitation in 2020 for qualified parking is also $270.
- The maximum foreign earned income exclusion in 2020 is $107,600.
For any tax return required to be filed in 2021, the additional tax for failing to file the return within 60 days of the due date (including extensions for filing) cannot be less than the lesser of (1) $330, or (2) 100 percent of the tax required to be shown on the return.