This year has been unlike any other, and taxes are no exception.
Due to new legislation resulting from the coronavirus pandemic, as well as the regular inflation adjustments, your federal income tax return for 2020 – the one due by April — will be a little different from previous years.
So, let’s take a look at how the return you’ll submit in 2021 will differ from the one you filed last year.
1. Waived RMDs
The Coronavirus Aid, Relief, and Economic Security Act of 2020, often known as the CARES Act, exempted retirement accounts from required minimum distributions (RMDs) in 2020.
RMDs are usually considered taxable income. As a result of this one-time relief, some retirees will have lesser taxable income in 2020, perhaps owing less in federal income taxes in 2021.
2. A charitable deduction available to all
Normally, you may only deduct tax-deductible charitable contributions on your federal tax return if you itemize your deductions rather than taking the standard deduction, which has become significantly more popular since the 2017 tax overhaul.
The CARES Act, however, allows taxpayers to deduct up to $300 in monetary gifts in 2020, even if they use the standard deduction, in an effort to encourage Americans to donate money to charity during the coronavirus epidemic.
3. Higher standard deductions
Standard deductions often increase each year when inflation is factored in. According to the IRS, the standard deduction amounts for the following tax-filing statuses for 2020 are as follows:
Married couples filing jointly: $24,800, up $400 from last year.
Separately filed returns for married couples: $12,400, an increase of $200.
Head of household: $18,650, an increase of $300.
Single: $12,400 — an increase of $200
The standard deduction lowers the amount of your income that is taxed by the federal government. So, if a single individual is qualified for and chooses to use the standard deduction on their 2020 tax return (rather than itemizing deductions), they will not be taxed on the first $12,400 of their income in 2020.
4. Higher income brackets
Annually, the income tax brackets also tend to climb. For those who file their taxes as singles in 2020, the income tiers are as follows:
A tax rate of 37%: 35 percent applies to taxable income of more than $518,400 More over $207,350 but under $518,400 32 percent: More than $163,300 but under $207,350 24 percent: More than $85,525 but under $163,300 22 percent: a sum greater than $40,125 but less than $85,525
12% of the total Amounts greater than $9,875 but less than $40,125
ten percent a household income of $9,875 or less
Pages 5-7 of IRS Revenue Procedure 2019-44 contain entire 2020 tax rate tables for all tax-filing statuses. See pages 8-10 of Internal Revenue Bulletin 2018-57 for a comparison with the 2019 tables.
5. Higher contribution limits for (some) retirement accounts
In 2020, you may be able to save more money in a variety of workplace retirement accounts.
For 401(k) plans, for example, the base contribution maximum is $19,500, up from $19,000 in 2019. The maximum catch-up contribution for taxpayers 50 and older is now $6,500, up from the previous ceiling of $6,000. So, in 2020, anyone over the age of 50 can contribute a total of $26,000 to a 401(k).
6. Higher contribution limits for HSAs
Workplace retirement plans aren’t the only option. Each year, the contribution limitations for health savings accounts (HSAs) rise, and 2020 is no exception.
The following are the contribution limits for people who are eligible for an HSA in 2020 and have high-deductible health insurance policies:
$3,550 for self-only coverage, rising from $3,500 in 2019.
$7,100 for a family, up from $7,000 previously.
7. Higher income limits for the saver’s credit
The saver’s credit, often known as the retirement savings contributions tax credit, will have greater income restrictions in 2020. As a result, more people will be able to benefit from this little-known tax credit.
If your adjusted gross income, or AGI (reported on your tax return), is less than the following amounts in 2020, you may be eligible for this benefit.
$65,000 for married couples filing jointly, up from $64,000 in 2019.
$48,750 for the head of household, up from $48,000 previously.
$32,500 for all other tax-filing statuses, up from $32,000 previously.
8. A more valuable adoption tax credit
For 2020, the tax credit for qualifying adoption expenses will be more valuable. The maximum credit amount is $14,300, an increase from $14,080 in 2019.
9. A more valuable earned income tax credit
The earned income tax credit (EITC) income limitations and maximum credit amount are both raised in 2020.
If your AGI is less than, you may be eligible for the EITC on your 2020 tax return.
$56,844 for married couples filing jointly, up from $55,952 in 2019.
$50,594 (increased from $50,162) for all other tax-filing statuses
The maximum EITC amount for 2020 is $6,660, up from $6,557 in 2019.
10. A higher cap on Social Security payroll taxes
Some people will be disappointed to learn that the maximum amount of income subject to Social Security payroll taxes has increased to $137,700 in 2020, up from $132,900 in 2019.