With 2019 coming to a close, it will soon be time to start preparing to file your 2019 tax return — the one that’s due by April 2020.
That return will differ from the last one you filed in several ways, though.
Many key aspects of federal income taxes — from standard deductions to retirement account contribution limits — can change every year due to inflation. Additionally, some aspects of the 2017 federal tax reform law didn’t take effect until 2019.
So, following is a look at some of the ways in which your 2019 tax return will differ from your prior return.
1. No individual mandate penalty
Most of the tax code changes stemming from the Tax Cuts and Jobs Act of 2017 took effect in 2018. One exception is the change to the shared responsibility payment, which took effect in 2019.
The shared responsibility payment — commonly referred to as the individual mandate penalty — had applied to folks who were required to have health insurance under the Affordable Care Act but who didn’t get coverage and didn’t qualify for an exemption.
If you owed the penalty, it was due when you paid your taxes.
Starting with 2019, however, there is no longer a penalty. So, folks who didn’t have health insurance in 2019 will not owe the penalty when they file their taxes in 2020.
2. No alimony deduction
Elimination of the alimony deduction is another Tax Cuts and Jobs Act change that took effect for tax year 2019 rather than 2018. For divorce and separation agreements made or modified this year or thereafter, alimony payments will not be deductible, says IRS Publication 5307.
So, a spouse who got divorced this year and paid alimony in 2019 cannot write the payments off on a tax return in 2020. That also means that a spouse who got divorced in 2019 and received alimony this year cannot count the payments as income.
3. Higher retirement account contribution limits
In 2019, you also could stash more cash in various types of retirement accounts, as we detailed in “Limits for 401(k), IRA and Other Retirement Plans to Rise in 2019.”
Contributions that you made for tax year 2019 to such accounts — including traditional 401(k) plans and traditional individual retirement accounts (IRAs) — could be deductible on your next tax return.
The 2019 contribution limits include:
- 401(k) base contribution: $19,000 (up from $18,500 in 2018)
- 401(k) catch-up contribution (for taxpayers 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)
Some contribution limits will also rise again for tax year 2020 — the one for which your return is due by April 2021 — as we recently reported.
4. Higher HSA contribution limits
Health savings accounts are another type of tax-advantaged account for which the contribution limits generally increase as the years roll along.
HSAs are not strictly for retirement savings, although you can effectively use them as retirement accounts, as we explain in “3 Reasons to Get a Health Savings Account.”
The 2019 contribution limits for people who are eligible for an HSA and have the following types of high-deductible health insurance policies are:
- Self-only coverage: $3,500 (up from $3,450 for 2018)
- Family coverage: $7,000 (up from $6,900)
HSA limits also will rise again for tax year 2020.
5. Higher standard deductions
Standard deductions are somewhat higher for tax year 2019 on account of inflation. The IRS reports that they are:
- Married filing jointly: $24,400 (up $400 from last year)
- Married filing separately: $12,200 (up $200)
- Head of household: $18,350 (up $350)
- Single: $12,200 (up $200)
The standard deduction reduces the amount of your income that’s subject to federal taxes. So, if a married couple filing a joint tax return are eligible for and choose to take the standard deduction on their 2019 return, they would not be taxed on the first $24,400 of their taxable income from 2019.
6. Higher income brackets
Income tax brackets are also somewhat higher for tax year 2019 than they were for 2018 on account of inflation.
The IRS reports that the tax rates and corresponding income brackets for 2019 are as follows for folks whose tax filing status is single:
- 37% tax rate: Applies to incomes of more than $510,300
- 35%: More than $204,100 but not more than $510,300
- 32%: More than $160,725 but not more than $204,100
- 24%: More than $84,200 but not more than $160,725
- 22%: More than $39,475 but not more than $84,200
- 12%: More than $9,700 but not more than $39,475
- 10%: $9,700 or less
For complete 2019 tax rate tables for all tax filing statuses, see IRS Revenue Procedure 2018-57. They start on Page 8 of the document. If you want to compare them with the 2018 tables, see Internal Revenue Bulletin 2018-10.
What’s your take on the changes in store for your next federal income tax return? Sound off in a comment below or over on the Money Talks News Facebook page.