November 2019 / United States

November 6 2019

IRS announces 2020 cost-of-living adjustments for pension plans

On 6 November 2019, the US Internal Revenue Service (IRS) issued Notice 2019-59 with cost-of-living adjustments for pension plans and other retirement-related items under the US Internal Revenue Code (IRC) for the tax year 2020. The IRS also issued a related News Release (IR-2019-179) dated 6 November 2019. The 2020 cost-of-living adjustments affect various US pension plans, including section 401(k) plans, individual retirement arrangements (IRAs), simplified employee pensions (SEPs), and SIMPLE retirement accounts.
November 7 2019

IRS announces inflation adjustments for 2020 – Part I

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.
November 7 2019

IRS announces inflation adjustments for 2020 – Part II

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.

Standard deduction amounts

The year 2020 standard deduction amounts are:
Filing status Standard deduction (USD)
married individuals filing joint returns 24,800
heads of households 18,650
unmarried individuals 12,400
married individuals filing separate returns 12,400
dependent claimed on another taxpayer's return lesser of (1) USD 12,400; or (2) greater of (i) USD 1,100 or (ii) sum of dependent's earned income plus USD 350

Overall limitation on itemized deductions

For 2020, the overall limitation on itemized deductions does not apply.

Personal exemption amount

The year 2020 amount for each personal exemption is USD 0.

Expatriation to avoid tax

The year 2020 average annual net income tax threshold at which US citizens and US long-term residents will be deemed to have expatriated from the United States for tax avoidance purposes will be USD 171,000. The US expatriation provisions of IRC section 877A will apply if the average annual net income tax for the five preceding taxable years exceeds this amount or if the individual has a net worth in excess of USD 2 million or fails to meet certain certification requirements. The year 2020 exclusion amount that will apply in computing the net gain subject to taxation on a mark-to-market basis for property owned on the date of expatriation will be USD 737,000.

Foreign earned income exclusion

The year 2020 annual limitation under IRC section 911(b)(2) for the foreign earned income exclusion of qualified US citizens and residents working abroad will be USD 107,600.

Unified credit against estate and gift tax

The 2020 unified credit against estate and gift tax for eligible taxpayers under IRC section 2010 is equal to an estate and gift tax exclusion amount of USD 11,580,000.

Annual exclusions for gifts

The year 2020 limitation on gifts that are not included in the total amount of taxable gifts under IRC section 2503 (other than gifts of future interests in property) will be USD 15,000. The year 2020 limitation on gifts that may be made to a spouse who is not a citizen of the United States (other than gifts of future interests in property) will be USD 157,000. Gifts up to this amount will not be treated as taxable gifts under IRC section 2503(b) and IRC section 2523(i).

Reporting large gifts from foreign persons

The year 2020 threshold at which US persons who receive gifts from foreign persons will be required to file an information return with the IRS under IRC section 6039F will be USD 16,649.
November 27 2019

Final regulations issued on ownership attribution for determining whether person is related to CFC, and on rents derived in active conduct of trade or business

The US Treasury Department and the US Internal Revenue Service (IRS) have issued final regulations (9883) under sections 954 and 958 of the US Internal Revenue Code (IRC) to provide guidance related to the determination of foreign base company income (FBCI), which is a subcategory of subpart F income. The final regulations were published in the Federal Register on 19 November 2019. The final regulations provide guidance regarding the attribution of ownership of stock or other interests for purposes of determining whether a person is a related person with respect to a controlled foreign corporation (CFC) under IRC section 954(d)(3). The final regulations limit the application of the downward attribution rules of IRC section 318(a)(3)(A) for purposes of the definition of a related person in IRC section 954(d)(3) to avoid inappropriately treating entities, including CFCs, that do not have a significant relationship to each other as related persons. In addition, the final regulations provide rules for determining whether a CFC is considered to derive rents in the active conduct of a trade or business for purposes of computing foreign personal holding company income (FPHCI). The final regulations adopt the proposed regulations (REG–125135–15), published on 20 May 2019, without changes (see United States-1, News 20 May 2019). The final regulations are designated Treasury Regulations sections 1.954-0, 1.954-1, 1.954-2, and 1.958-2. The final regulations generally apply to taxable years of CFCs ending on or after 19 November 2019, and taxable years of US shareholders in which or with which such taxable years end.