The year 2020 is looking a lot like 2019, at least in terms of taxes.
The IRS just released its inflation adjustments for 2020 federal income tax rates and brackets. While these changes are unlikely to have a huge impact on your bottom line, there are a few things you should be aware of heading into the new year.
Because these are the 2020 tax rates, they’ll determine your tax bill that will be due in 2021. You’ll use 2019 rates and brackets when you file your taxes on or before April 15, 2020.
How the 2020 Tax Brackets Break Down
There are seven tax brackets that range from 10% to 37%. The 2020 tax brackets break down as follows:
Unmarried Individuals
| Tax Bracket | Taxable Income |
|---|---|
| 10% | Up to $9,875 |
| 12% | $9,875 to $40,125 |
| 22% | $40,125 to $85,525 |
| 24% | $85,525 to $163,300 |
| 32% | $163,300 to $207,350 |
| 35% | $207,350 to $518,400 |
| 37% | Over $518,400 |
Married Individuals Filing Jointly or Surviving Spouses
| Tax Bracket | Taxable Income |
|---|---|
| 10% | Up to $19,750 |
| 12% | $19,750 to $80,250 |
| 22% | $80,250 to $171,050 |
| 24% | $171,050 to $326,600 |
| 32% | $326,600 to $414,700 |
| 35% | $414,700 to $622,050 |
| 37% | Over $622,050 |
Heads of Household
| Tax Bracket | Taxable Income |
|---|---|
| 10% | Up to $14,100 |
| 12% | $14,100 to $53,700 |
| 22% | $53,700 to $85,500 |
| 24% | $85,500 to $163,300 |
| 32% | $163,300 to $207,350 |
| 35% | $207,350 to $518,400 |
| 37% | Over $518,400 |
Pro Tip
Not sure of your filing status? This interactive IRS quiz can help you determine the correct status. If you qualify for more than one, it tells you which one will result in the lowest tax bill.
Tax rates apply to the income within each bracket. So if you’re an unmarried individual with taxable income of $50,000, you won’t pay 22% of that $50,000 to Uncle Sam.
According to the 2020 tax brackets, you’d pay:
- 10% on the first $9,875
- 12% on the next $30,250 ($40,125 – $9,875 = $30,250)
- 22% on the next $9,875 ($50,000 – $40,125 = $9,875)
4 Tax Changes That Could Affect You in 2020
The modified tax brackets aren’t the only changes the IRS announced. About 60 tax provisions will be adjusted in the new year. A few highlights:
- The standard deduction will rise slightly: The standard deduction will rise by $200 to $12,400 for people who are single filers or married filing separately. For those who are married filing jointly, the standard deduction will rise by $400 to $24,800.
- You may be able to save an extra $500 for retirement: If you have an employer-sponsored tax-deferred retirement plan, like a 401(k) or 403(b), your maximum contribution is $19,500 in 2020, up from $19,000 in 2019. The additional “catch-up” contribution workers ages 50 and older can make will also go up by $500, from $6,000 to $6,500.
- You can contribute an extra $50 to a flexible spending account. In 2020, the maximum contribution individuals can contribute is $2,750.
- Some limited-income families can get an extra $103. The maximum Earned Income Tax Credit will increase to $6,660. You need at least three children to qualify for the maximum amount.
3 Tax Rules That Aren’t Changing in 2020
- IRA contribution limits won’t change. The traditional and Roth IRA contribution limits will remain at $6,000 for people under 50. The extra $1,000 “catch-up” contribution the IRS allows people 50 and older to make won’t change either.
- You can still gift someone up to $15,000 without paying the federal gift tax. The gift tax exemption is something you might want to take advantage of if you’re contributing to a 529 plan.
- There’s no limit on itemized deductions. The Tax Cuts and Jobs Act of 2017 suspended these limits.
Ready to Start Your 2020 Tax Prep?
OK, we get it: You’re probably not thinking about your 2020 taxes yet. After all, you haven’t even had your 2019 Thanksgiving turkey.
But if you’re the plan-ahead type, you can check out this comprehensive summary of 2020 tax changes courtesy of the IRS.
Even if you’re not ready to jump into 2020 tax planning mode just yet, keep in mind that a new year is often a good time to check your tax withholdings and make adjustments if necessary. So make a date with yourself in early January for a quick tax checkup.
Robin Hartill is a senior editor at The Penny Hoarder. She edits and writes stories about bank accounts, credit scores, home buying, insurance, investing, retirement and taxes. She is also the voice behind the Dear Penny personal advice column, which is syndicated in the Tampa Bay Times Sunday business section.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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