On 6 November 2019, the US Internal Revenue Service (IRS) issued Revenue Procedure 2019-44 with inflation adjustments to tax allowances and other items for 2020. The IRS also issued a related News Release (IR-2019-180) dated 6 November 2019.
The IRS will make these adjustments with effect from 1 January 2020. These adjustments are required to be made each year by the applicable provisions of the US Internal Revenue Code (IRC).
The main adjustments announced by the IRS in Revenue Procedure 2019-44 are set forth below.
Personal income tax rates and brackets
The 2020 personal income tax rates and tax brackets are as follows:
Married individuals filing joint returns:
| Taxable income (USD) | Tax rate for bracket (%) |
|---|---|
| not over 19,750 | 10 |
| 19,751 – 80,250 | 12 |
| 80,251 – 171,050 | 22 |
| 171,051 – 326,600 | 24 |
| 326,601 – 414,700 | 32 |
| 414,701 – 622,050 | 35 |
| more than 622,050 | 37 |
Heads of households:
| Taxable income (USD) | Tax rate for bracket (%) |
|---|---|
| not over 14,100 | 10 |
| 14,101 – 53,700 | 12 |
| 53,701 – 85,500 | 22 |
| 85,501 – 163,300 | 24 |
| 163,301 – 207,350 | 32 |
| 207,351 – 518,400 | 35 |
| more than 518,400 | 37 |
Unmarried individuals:
| Taxable income (USD) | Tax rate for bracket (%) |
|---|---|
| not over 9,875 | 10 |
| 9,876 – 40,125 | 12 |
| 40,126 – 85,525 | 22 |
| 85,526 – 163,300 | 24 |
| 163,301 – 207,350 | 32 |
| 207,351 – 518,400 | 35 |
| more than 518,400 | 37 |
Married individuals filing separate returns:
| Taxable income (USD) | Tax rate for bracket (%) |
|---|---|
| not over 9,875 | 10 |
| 9,876 – 40,125 | 12 |
| 40,126 – 85,525 | 22 |
| 85,526 – 163,300 | 24 |
| 163,301 – 207,350 | 32 |
| 207,351 – 311,025 | 35 |
| more than 311,025 | 37 |
Estates and trusts:
| Taxable income (USD) | Tax rate for bracket (%) |
|---|---|
| not over 2,600 | 10 |
| 2,601 – 9,450 | 24 |
| 9,451 – 12,950 | 35 |
| more than 12,950 | 37 |
Unearned income of minor children
Children below the age of 18 who have unearned income (e.g. investment income) over a threshold amount are subject to tax (the "kiddie tax") at the highest tax rate applicable to their parents. The threshold amount of unearned income at which the kiddie tax will begin to apply for 2020 will be the sum of:
- USD 1,100; plus
- the greater of (i) USD 1,100 or (ii) the itemized deductions applicable to the child's unearned income if the child itemizes his or her deductions.
A parent may elect to include the income of a child on the tax return of the parent if the only income of the child is from interest and dividends, if the child has no earned income, and if the interest and dividends of the child are above a threshold amount and below a ceiling amount. The threshold amount for 2020 will be USD 1,100 and the ceiling amount for 2020 will be USD 11,000.
Exemption amounts for Alternative Minimum Tax
The 2020 exemption amounts for the alternative minimum tax (AMT) are:
| Filing status | AMT Exemption (USD) |
|---|---|
| married individuals filing joint returns | 113,400 |
| unmarried individuals | 72,900 |
| married individuals filing separate returns | 56,700 |
| estates and trusts | 25,400 |
The AMT is imposed at the rate of 26% on the taxable excess (i.e. the excess of the AMTI over the exemption amount) up to specified levels and 28% on the taxable excess above the levels. The 2020 taxable excess amounts above which the 28% rate applies are:
| Filing status | Taxable excess (USD) |
|---|---|
| married individuals filing joint returns | 197,900 |
| unmarried individuals | 197,900 |
| married individuals filing separate returns | 98,950 |
| estates and trusts | 197,900 |
The exemption amounts are phased out by an amount equal to 25% of the amount by which the taxpayer's alternative minimum taxable income (AMTI) exceeds specified thresholds. The 2020 threshold amounts at which the AMT exemptions begin to phase out are:
| Filing status | AMTI threshold (USD) |
|---|---|
| married individuals filing joint returns | 1,036,800 |
| unmarried individuals | 518,400 |
| married individuals filing separate returns | 518,400 |
| estates and trusts | 84,800 |
AMT exemption amount for kiddie tax
The alternative minimum tax (AMT) exemption amount for 2020 for children who are subject to the kiddie tax will be the lesser of (1) the sum of the child's earned income plus USD 7,900 or (2) the regular AMT exemption amount for single taxpayers.