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The Internal Revenue Service released 2020 inflation adjustments for dozens of Internal Revenue Code provisions that are adjusted annually for inflation on 6 November 2019. See IR-2019-180 and Rev. Proc. 2019-44. IRS also provided new limits for contributions to retirement plans in IR-2019-179 and Notice 2019-59. All of these changes generally will take effect on 2020 returns filed in 2021.
The standard deduction, which is much more commonly used after the Tax Cuts and Jobs Act (TCJA) reduced or limited many itemized deductions, rises to $24,800 per year for married couples filing jointly (up by $400), and to $12,400 for singles (up by $200). The personal exemption remains zero after its elimination by the TCJA.
In addition, the income levels at which the various tax rates are applied are adjusted. For example, the top rate of 37% will apply to incomes greater than $518,400 ($622,050 for married couples). Those figures are up from $510,300 and $612,350.
The Alternative Minimum Tax exemption for 2020 is $72,900 for singles and $113,400 for married couples, up from $71,700 and $111,700, respectively. The amounts at which the exemption begins to phase out are $518,400 and $1,036,800, up from $510,300 and $1,020,000. These generous TCJA increases resulted in an enormous drop in the number of taxpayers subject to the AMT in 2018 from over 4 million to just over 78,000.
The foreign earned income exclusion increases from $105,900 to $107,600.
Employees will be allowed to contribute up to $19,500 to 401k plans next year, up from $19,000.
These inflation-adjusted amounts will affect gross-up calculations for 2020.
Worldwide ERC® continues to monitor the impact of the Tax Cuts and Jobs Act on talent mobility programs and policies.
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