The IRS tax code is constantly in flux. From major overhauls to minor tax law changes, each year there are new opportunities to earn a larger tax refund check. As you begin planning your tax preparation, learn about what’s new for 2020.
Important Updates about Recent Tax Law Changes
Higher Standard Deductions
The standard deduction, which reduces the amount of your income that’s subject to Federal income tax, has been increased to keep pace with inflation.
The IRS’ 2020 standard deduction limits include increases in all four filing categories.
- Married filing jointly: $24,400 ($400 increase from last year)
- Married filing separately: $12,200 (up $200)
- Head of household: $18,350 ($350 increase)
- Single: $12,200 (up $200)
Higher Retirement Account Contribution Limits
IRS tax law changes to retirement account contribution limits — the first since 2013 — allow you to divert more funds into various types of retirement accounts, like your 401(k) or your IRA.
These retirement contributions may also be deductible on your next tax return.
Contribution Limits for 2019 Tax Year
- 401(k) base contribution: $19,000 (increased from $18,500 last year)
- 401(k) catch-up contribution (for those age 50 and older): additional $6,000 (unchanged)
- IRA base contribution: $6,000 (up from $5,500)
- IRA catch-up contribution (for taxpayers age 50 and older): additional $1,000 (unchanged)
Contribution limits will increase again in 2021.
Higher Health Savings Accounts (HSA) Contribution Limits
The contribution limits for Health Savings Accounts (HSA) are generally increased with other tax law changes every year.
The updated 2019 HSA contribution limits for these tax-advantaged accounts are eligible to those with:
- Self-only coverage: $3,500 (up from $3,450 last year)
- Family coverage: $7,000 (up from $6,900)
HSA limits are also scheduled to increase for tax year 2020.
Higher Medical Expense Deduction Threshold
For 2020, the medical expense deduction threshold will rise to 10 percent of adjusted gross income. This tax law change comes after a two-year reduction to 7.5 percent, which was part of The Tax Cuts and Jobs Act.
Now in order to qualify for this deduction, your unreimbursed medical and dental expenses cannot exceed 10 percent of your 2019 adjusted gross income.
No more Individual Mandate Penalty
Another one of the delayed tax law changes that goes into effect in 2020 is the elimination of the individual mandate. Starting this year, there will no longer be a penalty for not being enrolled in a health insurance plan.
No Alimony Deduction Allowed
Taxpayers should also be aware of a change in the IRS rules about alimony deductions that took effect in 2019.
If you were divorced this year and have paid alimony this year, you will not be able to write off the payments on your 2020 tax return. In addition, those receiving alimony this year cannot count those payments as income.
Updated Income Tax Brackets
Due to inflation, income tax brackets have been adjusted for 2020 to include a slight increase.
Although some of these tax law changes may be minor, they could ultimately help you earn a larger refund check. If you have tax questions or would like help with tax planning and preparation, contact a local accountant.