The IRS recently issued its 2020 cost-of-living adjustments. With inflation remaining largely in check, many amounts increased only slightly, and some stayed at 2019 levels. While the actual impact will not be felt until the 2020 returns are filed, we believe it is important to take the new limits into consideration when making financial decisions. If you have any questions on the information listed below or would like to discuss how it may affect your situation in regard to your finances or investments, do not hesitate to reach out to your Summit advisor.

Marginal Rates

For tax year 2020, the top tax rate remains 37% for individual single taxpayers with incomes greater than $518,400 ($622,050 for married couples filing jointly). The other rates are:

35% for incomes over $207,350 ($414,700 for married couples filing jointly)
32% for incomes over $163,300 ($326,600 for married couples filing jointly)
24% for incomes over $85,525 ($171,050 for married couples filing jointly)
22% for incomes over $40,125 ($80,250 for married couples filing jointly)
12% for incomes over $9,875 ($19,750 for married couples filing jointly)

The lowest rate is 10% for incomes of single individuals with incomes of $9,875 or less ($19,750 for married couples filing jointly).

Standard deduction

Married $24,800 ($400 increase)
Single $12,400 ($200 increase)

Alternative Minimum Tax

For tax year 2020, the Alternative Minimum Tax exemption (for single filers) will rise to $72,900 (from $71,700) and will begin to phase out at $518,400 (from $510,300). For married taxpayers filing jointly, the exemption will be $113,400 and the phase-out will begin at $1,036,800.

Lifetime estate exclusion

The basic exclusion amount for determining the unified credit against the estate tax will be $11,580,000 for decedents dying in calendar year 2020, up from $11,400,000 in 2019.

Annual nontaxable gift limit

The annual gift tax exclusion amount remains at $15,000, but the gift tax annual exclusion for gifts of a present interest to a spouse who is not a U.S. citizen will increase to $157,000 in 2020 from $155,000 in 2019.

Summary of increased pension limits for 2020

The contribution limit for employees who participate in 401(k) plans increases from $19,000 to $19,500
The catch-up contribution limit for employees aged 50 and over who participate in 401(k) plans increases from $6,000 to $6,500
The annual benefit limitation under a defined benefit plan increases from $225,000 to $230,000
The annual contribution limitation for defined contribution plans increases from $56,000 to $57,000
The annual compensation limit increases from $280,000 to $285,000
The Highly Compensated Employee pay limit increases from $125,000 to $130,000

Summary of unchanged pension limits for 2020

The limit on annual contribution to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Source: IRS Notice 2019-59 & Rev. Proc 2019-44

Financial Advisors do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation. 2823603 DOFU 11-2019