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The adjustments for 2019 will generally be used on tax returns due in 2020.
The changes are more extensive than usual due to numerous changes made by the Tax Cuts and Jobs Act (TCJA). For example, the deduction for personal exemptions is suspended through 2025, so there is no inflation adjustment; the deduction is zero. In addition, TCJA-imposed “chained CPI” is used for inflation adjustments. This measure of inflation assumes that as prices rise, consumers either forgo certain expenditures or switch to less expensive alternative. It generally results in a lower adjustment than the CPI, which was used previously.
Related: Repayments Under Payback Agreements No Longer Deductible
The standard deduction was roughly doubled by the TCJA. For married couples it rises from $24,000 to $24,400, and for singles from $12,000 to $12,200 for singles. The foreign earned income exclusion rises from $103,900 to $105,900. The Alternative Minimum Tax exemption amount goes from $70,300 to $71,700 ($111,700 for married couples) and begins to phase out at $510,300 ($1,020,600 for married couples). There is no longer any limitation on itemized deductions, so there is no longer an inflation adjustment for that item.
Other adjustments affect the thresholds for the various income tax rates and the amount of income that will trigger the top 37% rate.
Worldwide ERC® members will need to program withholding and other payroll systems to take account of these adjustments, which will also affect gross-up calculations.
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