Tax Changes with the Tax Cuts & Jobs Act
The new tax reform bill became law late in 2017. We have outlined the main elements of the new tax law below. These changes began in 2018 & 2019 tax years.
Ordinary Income Tax Brackets
There are seven ordinary income tax brackets, and the rates and income thresholds for these brackets have changed. The individual tax rates range from 10% to 37%.
Restrictions on Itemized Deductions
The state and local tax deductions are now capped at $10,000 for single taxpayers and those married filing joint returns. This limit is on state/local property taxes and either state/local income taxes or state/local sales taxes.
The mortgage interest deduction is limited to interest paid on up to $750,000 of mortgage indebtedness for mortgages incurred after December 14, 2017.
Taxpayers can deduct up to 60% of their AGI for cash charitable contributions. Written documentation from the charity is still required for contributions of $250 or more.
Miscellaneous Itemized Deductions that exceed 2% of AGI have been eliminated. These deductions include tax prep expenses, union dues, investment fees, and unreimbursed employee expenses.
Child Tax Credit
The child tax credit increased from $1000 for each qualifying child, to $2000 for each qualifying child with $1400 being refundable. This is subject to phaseouts based on income.
529 plan distributions are also federally tax-free when used for qualified elementary and secondary school expenses up to $10,000. However, some states may not consider this a qualified distribution.
New Deduction for Pass-Through Income
Taxpayers may be eligible for a 20% deduction of qualified business income generated from a pass-through entity.
Federal Individual Shared Responsibility Payment
The federal individual shared responsibility payment for individuals without minimum essential health coverage has been reduced to zero beginning in 2019. However, some states may charge a fee.
These are only a few key points regarding tax information and are only provided as a basis for further study. We make every attempt to provide consistent, current information. Any information provided is subject to change, and we are not responsible if any information is not consistent with current law. Providing this information does not serve as tax advice. Please note that every individual’s tax situation is different. Please speak with us regarding the specifics of your tax situation and how these changes may affect you.
Tax Information for 2020
Social Security Wage Base
For 2020 the social security wage base is $137,700. This is an increase from the 2019 wage base of $132,900.
For 2020 the mileage allowance is 57.5 cents per mile for business travel. This is down slightly from the 2019 rate of 58 cents per business mile. Miles driven for medical care or for a qualified move is 17 cents per mile, down from 20 cents in 2019. The mileage rate for providing services to a charity remains at 14 cents per mile.
2020 Federal Standard Deductions
$12,400 for single filers & married filing separately (up from $12,200 in 2019)
$24,800 for married filers (up from $24,400)
$18,650 for head of household (up from $18,350)
*Beginning in 2018, personal exemptions were eliminated.
Retirement Plan Contribution Limits
- The 401(k) contribution limit for 2020 is $19,500 with an additional $6,500 allowed for catch-up contributions. The 2019 401(k) contribution limit is $19,000 with a $6,000 catch-up.
- The 2020 IRA contribution limit is $6,000 with an additional $1,000 allowed for catch-up contributions. These limits are the same as 2019.
- The 2020 SIMPLE IRA contribution limit is $13,500 with an additional $3,000 allowed for catch-up contributions. The 2019 SIMPLE IRA contribution limit is $13,000 with an additional $3,000 allowed for catch-up contributions.
Other Tax Information for 2020
- The 2020 limit on Health Savings Account contributions is $3,550 for a taxpayer with self-only coverage under a high deductible health plan. The limit for family coverage under a high deductible health plan is $7,100. The 2019 limits are $3,500 and $7,000, respectively.
- The federal individual shared responsibility payment for individuals without minimum essential health coverage has been reduced to zero beginning in 2019.
- The state income tax rate for Indiana remains at 3.23% for 2019 and 2020.
These are only a few key points regarding tax information for 2020 and are only provided as a basis for further study. We make every attempt to provide consistent, current information. Any information provided is subject to change, and we are not responsible if any information is not consistent with current law. Providing this information does not serve as tax advice. As each individual tax situation is different, please notify us if you have any questions or concerns.