The dust from the Tax Cuts and Jobs Act, which went into effect in January 2018, hasn’t quite finished settling yet. The TCJA upended the existing tax code enough that the IRS has been scrambling ever since to catch up with some of its terms. That’s not even to mention a flurry of new legislation that was passed in December 2019, and the usual inflation adjustments – about 40 each year – that the IRS makes to various tax provisions.
So don’t begin preparing your 2019 taxes just yet – the return you’ll file in 2020. Take a moment to digest some of the more impactful updates and tax return changes.
There Are 2 New Tax Forms
Yes, the IRS radically redesigned the 2018 Form 1040, the strange, new one you grappled with last year. The problem was, everyone hated that tax return. It gave the term “unpopular” whole new meaning, so the IRS went back to the drawing board.
The 2018 tax return included a boggling number of new schedules, but the 2019 tax return you’ll file in 2020 gets rid of some of them. The old Schedules 2 and 4 are now condensed into just one form. The same thing happened with Schedules 3 and 5, and Schedule 6 has been moved onto the 1040 itself.
Then there’s the new Form 1040-SR. The “SR” designation means “senior.” The IRS has acknowledged that taxpayers age 65 and older might not see as well as they used to, so it created a special tax return just for them. The font is larger, and it includes a large standard deduction chart that’s also easier to read. But there's a potential downside for some older taxpayers: Seniors who use the form are limited to claiming the standard deduction. Itemizing isn’t an option.
Read More: What Can I Claim on My Taxes When Itemizing?
Increased Standard Deductions
Standard deductions are among the tax provisions that the IRS updates annually to keep pace with inflation. You can subtract the following amounts from your taxable income when you prepare your tax return in 2020 if you decide to forgo itemizing instead.
- Single filers: $12,200, up from $12,000 in 2018
- Married taxpayers filing separately: $12,200, up from $12,000 in 2018
- Heads of household: $18,350, up from $18,000 in 2018
- Married taxpayers filing jointly: $24,400, up from $24,000 in 2018
Standard Deduction: How Much Is It, When to Take It and How to Use It
Tax Brackets Adjust for Inflation, Too
Tax rates themselves don’t change from year to year, at least not without major legislation. They’re still set at 10%, 12%, 22%, 24%, 32%, 35% and 37% in 2020, but they now span more income.
For single filers, the 2019 brackets range from:
- 10%: $0 to $9,700
- 12% $9,701 to $39,475
- 22%: $39,476 to $84,200
- 24%: $84,201 to $160,725
- 32%: $160,726 to $204,100
- 35%: $204,101 to $510,300
- 37%: $510,301 and over
Brackets are the same for married taxpayers who file separate returns, with one significant difference: The 37% bracket for these filers begins at just $306,176 – more than $200,000 less.
As for those who qualify as heads of household, their 2019 tax brackets range from:
- 10%: $0 to $13,850
- 12%: $13,851 to $52,850
- 22%: $52,851 to $84,200
- 24%: $84,201 to $160,700
- 32%: $160,701 to $204,100
- 35%: $204,101 to $510,300
- 37%: $510,301 and over
The brackets for married taxpayers filing joint returns have always been the most generous, and they've gotten a bump as well:
- 10%: $0 to $19,400
- 12% $19,401 to $78,950
- 22%: $78,951 to $168,400
- 24%: $168,401 to $321,450
- 32%: $321,451 to $408,200
- 35%: $408,201 to $612,350
- 37%: $612,351 and over
The Alternative Minimum Tax
The alternative minimum tax prevents wealthier taxpayers from greatly reducing or even eliminating any taxes they might owe through extensive use of various tax deductions. Those who earn more tend to spend more, and smart taxpayers tend to spend more on tax-deductible expenses, such as mortgage interest.
Not so fast, says the IRS. Taxpayers who earn over a certain threshold must calculate their tax liability twice: according to the regular rules, and according to AMT rules. In simplest terms, they must pay whichever tax debt amounts to more (Refs 4, 6).
- $111,700 for married taxpayers filing jointly
- $71,700 for all single taxpayers
That Health Insurance Penalty…
Health insurance has been a taxation hot point for a few years, beginning when the Affordable Care Act imposed a tax penalty in 2010 for those who didn’t carry health insurance. But the tax code at least offers an itemized tax deduction for self-paid premiums and uncovered medical and dental expenses.
Both of these provisions have changed. That ACA individual mandate penalty went away effective January 2019. The TCJA eliminated it, although the elimination was something of a postponed gift that you can finally take advantage of when you prepare your 2020 tax return.
This assumes that you don't live in California, the District of Columbia, Massachusetts, New Jersey, Rhode Island or Vermont. Those states still impose individual mandate laws and lack-of-insurance tax penalties (Refs 2, 3, 7).
…And the Itemized Deduction for Medical Expenses
The TCJA kindly dropped the threshold for the itemized medical expense deduction from 10% to 7.5% through tax year 2018. You can only deduct the portion of self-paid insurance premiums and expenses that exceed this percentage of your adjusted gross income, so the higher the percentage, the smaller your deduction.
Enter the Tax Extenders and Disaster Relief Act, signed into law in December 2019. It preserves the 7.5% threshold through the end of 2019. Unfortunately, you might be faced with a 10% threshold again at this time next year because this is a temporary measure (Refs 1, 2).
Changes to Alimony Payments
There’s one more big change for tax year 2019, at least for divorcees. It’s historically been the case that ex-spouses who receive alimony had to claim that money as taxable income on their returns. Those paying it could claim an advantageous “above the line” adjustment to income – they could claim an alimony deduction and itemize or claim the standard deduction, too.
Not anymore. The TCJA eliminated this tax provision as well, at least for divorce decrees and agreements entered into beginning in January 2019. You might take a tax hit if you were divorced last year, at least if you're paying alimony and not receiving it (Refs 2, 3).
Of course, the ramped-up standard deductions and tax brackets might ease a bit of the sting.
Read More: What Happens If You Don't File Taxes?
- TurboTax: What You Should Know for 2019
- USA.gov: Tax Law Changes
- Accounting Today: Tax Strategy – What’s New for 2019 Tax Returns
- Tax Foundation: 2019 Tax Brackets
- AARP: Senior Tax Form Could Simply Filing
- IRS: Topic No. 556 Alternative Minimum Tax
- eHealth: Does Your State Require You to Have Health Insurance?