New Inflation Estimates Offer First Look at Potential Impact for Taxpayers in 2020

Wolters Kluwer offers quick, go-to guidance on latest figures

An early glimpse of the income tax picture for 2020, as projected under current tax law, is now available from Wolters Kluwer Tax & Accounting. The new information includes estimated ranges for each 2020 tax bracket as well as projections for a growing number of inflation-sensitive tax figures, such as the standard deduction. These annual projections are based on the relevant inflation data recently released by the U.S. Department of Labor.

Inflation adjustments- a quick background

Since the late 1980s, the U.S. Tax Code has required that federal income tax brackets be adjusted for inflation annually, and other inflation adjustments have been inserted into the Internal Revenue Code in recent years with increasing frequency. For example, the Code now requires over 50 other inflation-driven computations to determine deduction, credit and exclusion amounts in addition to the 50 separate computations needed to inflation-adjust the tax bracket schedules each year. Estimates for any of the inflation-adjusted tax figures for 2020, of course, are also necessarily subject to any changes to the tax law that may be made by Congress over the course of the next year.

Key tax savings, inflation-adjusted projections for 2020

Projections based on the Department of Labor’s inflation figures for the 12-month period between August 31, 2018 and August 31, 2019 suggest most taxpayers will experience a degree of inflation-driven “tax cut” savings in comparison to their 2019 tax return filings. Here’s an example of how taxpayers will benefit on 2020 tax returns, when compared to 2019 tax returns based on the inflation adjustments provided under the current tax code:

• Because of the income ranges bracketing, the inflation adjustments will provide an effective “tax cut” by taxing more income at lower marginal tax rates. A single filer with taxable income of $50,000 should owe $105 less next year due to the adjustments to the income tax rate brackets between 2019 and 2020

• A married couple filing jointly with a total taxable income of $130,000 should pay $66 less income taxes for 2020 tax returns than they will on the same income for 2019 because of indexing of their tax bracket for 2020

• The additional standard deduction for those 65-years-old and older or who are blind will remain at $1,300 for 2020 tax returns, as will the $1,650 additional amount for single aged 65 or older or blind filers

Other inflation-adjusted tax estimates for 2020

• The standard deduction for single, married filing jointly, and married filing separately filers is expected to rise for 2020: at $12,400, $24,800 and $12,400, respectively, up from $12,200, $24,400 and $12,200. The standard deduction for heads of household is expected to rise $300 to $9,18,650 for 2020. Any increase in the standard deduction, of course, can produce lower taxes by decreasing the taxpayer’s taxable income

• Wolters Kluwer Tax & Accounting projects the following for 2020 alternative minimum tax (AMT) exemptions: For married joint filers and surviving spouses, the exemption will be adjusted upward to $113,400, up from $111,700 for 2019. For unmarried single filers and heads of households, the 2020 exemption will be $72,900, up from $71,700 for 2019. For married single filers, the exemption will increase to $56,700, up from $55,850 for 2019. The 2020 year will represent the third year that the 37-percent tax bracket for higher-income taxpayers, enacted by the Tax Cuts and Jobs Act of 2017 (TCJA), will be imposed. For 2020, Wolters Kluwer projects that the minimum taxable income amounts at which this top tax rate will kick in will rise to:

o $622,050 (from $612,350) for married joint filers
o $518,400 (from $510,300) for heads of households
o $518,400 (from $510,300) for unmarried filers
o $311,025 (from $306,175) for married separate filers

These inflation-adjusted amounts also trigger a 20-percent tax on that portion of taxable income attributable to net capital gains and qualified dividends that exceed these bracket amounts. Further, a 3.8 percent surtax on net investment income (NII) currently applies to taxpayers with more than modified adjusted gross income of $200,000 for single filers and $250,000 for joint returns. The NII threshold amounts are not adjusted for inflation each year, making this additional tax more likely to capture a greater number of taxpayers each year.

• The estate and gift tax applicable exemption was increased by the Tax Cuts and Jobs Act. The amount has been adjusted for inflation by Congress and is now projected at $11,580,000 for 2020. A spousal portability election can now effectively protect double that amount against estate and gift tax ($23,160,000 for 2020). The annual gift tax exclusion for 2020 is projected to remain at $15,000 for gifts to each recipient

• The 2020 foreign earned income exclusion will increase to $107,600 for 2020, up from $105,900 for 2019

Wolters Kluwer Tax & Accounting 2020 Tax Projections*

As cited earlier, Wolters Kluwer Tax & Accounting projections for indexed amounts are based on the relevant inflation data released by the U.S. Department of Labor. The IRS usually releases official numbers by November each year.

Tax bracket projections are provided for illustrative purposes only, and should not be used for income tax returns or other federal income tax related purposes until confirmed by the IRS later this year, and as subject to amendment by Congress during the rest of 2019, or even retroactively during 2020.

Married Filing Jointly (& Surviving Spouse)


Tax Rate
2019 Taxable Income 2020 Taxable Income
10% $0 – $19,400 $0 – $19,750
12% $19,401 – $78,950 $19,751 – $80,200
22% $78,951 – $168,400 $80,201 – $171,050
24% $168,401 – $321,450 $171,051 – $326,600
32% $321,451 – $408,200 $326,601 – $414,700
35% $408,201 – $612,350 $414,701 – $622,050
37% $612,351+ $622,051+

Unmarried Individuals (Other Than Surviving Spouses and Heads of Households)


Tax Rate
2019 Taxable Income 2020 Taxable Income
10% $0 – $9,700 $0 – $9,875
12% $9,701 – $39,475 $9,876 – $40,100
22% $39,476 – $84,200 $40,101 – $85,525
24% $84,201 – $160,725 $85,526 – $163,300
32% $160,726 – $204,100 $163,301– $207,350
35% $204,101 – $510,300 $207,351 – $518,400
37% $510,301+ $518,401+

Head of Household


Tax Rate
2019 Taxable Income 2020 Taxable Income
10% $0 – $13,850 $0 – $14,100
12% $13,851 – $52,850 $14,101 – $53,700
22% $52,851 – $84,200 $53,701 – $85,500
24% $84,201 – $160,700 $85,501 – $163,300
32% $160,701 – $204,100 $163,301 – $207,350
35% $204,101 – $510,300 $207,351 – $518,400
37% $510,301+ $518,401+

Married Individuals Filing Separate Returns


Tax Rate
2019 Taxable Income 2020 Taxable Income
10% $0 – $9,700 $0 – $9,875
12% $9,701 – $39,475 $9,876 – $40,100
22% $39,476 – $84,200 $40,101 – $85,525
24% $84,201 – $160,725 $86,526 – $163,300
32% $160,726 – $204,100 $163,301 – $207,350
35% $204,101 – $306,175 $207,351 – $311,025
37% $306,176+ $311,026+

Standard Deduction Amounts


Filing Status
2019 2020 Increase
Married Filing Jointly (& Surviving Spouse) $24,400 $24,800 $400
Married Filing Separately $12,200 $12,400 $200
Single $12,200 $12,400 $200
Head of Household $18,350 $18,650 $300

Standard Deduction for Dependents

2019 2020 Increase
$1,150 $1,150 $0

Gift Tax Exclusion

2019 2020 Increase
$15,000 $15,000 $0
  • These numbers are projected for the 2020 tax year and have not been confirmed by the Internal Revenue Service (www.irs.org). They are provided for illustrative purposes only and should not be used for income tax returns or other federal income tax related purposes until confirmed by the IRS later this year, and as subject to amendment by Congress during the rest of 2019, or even retroactively during 2020.

PLEASE NOTE: The content of this article is designed to provide accurate and authoritative information in regard to the subject matter covered. The information is provided with the understanding that Wolters Kluwer Tax & Accounting is not engaged in rendering legal, accounting, or other professional services.

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MARISA WESTCOTT
212-771-0853
marisa.westcott@wolterskluwer.com

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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