The IRS recently announced the new tax brackets for the 2020 tax year, to be filed in 2021. For married taxpayers filing jointly, they need to start figuring out now how much tax they can expect to pay this coming tax season.
There have been some significant changes to the IRS tax brackets, including:
- The standard deduction for married taxpayers filing jointly has been increased to $24,400. This is a $400 increase from the previous year. There have been similar increases for other tax filing statuses, but these are lower at $12,200, an increase of $200.
- The personal tax exemption hasn’t changed from 2018. The Tax Cuts and Jobs Act (TCJA) stipulated that the personal exemption has been removed.
- For married couples filing jointly, the top rate of tax has remained the same at 37%. To qualify for the top rate of tax, you must have earned more than $612,350.
The other tax brackets for married taxpayers filing jointly are:
- 35% for incomes over $408,200.
- 32% for incomes over $321,450.
- 24% for incomes over $168,400.
- 22% for incomes over $78,950.
- 12% for incomes over $19,400.
Anything below $19,400 means you pay a 10% tax rate.
You should also remember that there’s no limit on the number of itemized deductions, as this was removed the previous year under the Tax Cuts and Jobs Act (TCJA).
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The Alternative Minimum Tax Exemption
Married couples filing jointly will also see a change in the alternative minimum tax exemption. This limitation is set at $111,700, and it will begin to phase out at $1,020,600.
As you can see, this is a relatively minor increase when compared to the previous year.
Credit and Deduction Changes
The Earned Income Credit (EIC) has been increased for married couples filing jointly to $6,660 for 2020. This represents a minor increase from the maximum in 2019.
The maximum amount can be claimed if you have three or more qualifying children. There are also other factors to take into account, such as your income.
The transportation fringe benefit has also seen a change. It’s now worth $265, which is an increase of $5 from 2018.
A big change is to the financial penalty levied for not maintaining a minimum level of health coverage. Under the Tax Cuts and Jobs Act (TCJA), this is now $0, a reduction of $695 from 2018.
Other Major Tax Changes
- For contributions to flexible health spending arrangements, the dollar limitation has been updated to $2,700.
- For taxpayers who hold a Medical Savings Account for self-only coverage, the annual deductible must be at least $2,350 and no more than $3,500.
- The new adjusted gross income amount for joint filers is $116,000 for the use of deciding what the reduction is for the Lifetime Learning Tax Credit.
- The foreign earned income exclusion has increased to $105,900.
- The basic exclusion on the estates of decedents is now $11,400,000.
- The annual exclusion on gifts hasn’t changed and remains at $15,000.
- The tax credit for qualified adoption expenses has increased from $13,810 to $14,080.
Deciding Which Tax-Filing Status to Use
The best way to find out if you should file jointly or separately with your spouse is to prepare the tax return both ways. Double-check your calculations and then look at the net refund or balance due from each method.
If you use online tax filing to prepare your return, They will do the calculation for you, and recommend the filing status that gives you the biggest tax savings.