As it does annually, the IRS announced its annual inflation adjustments for the new year, including tax rate schedules, tax tables, and cost-of-living adjustments. It also adjusted items such as contribution limits for 401(k)s, H.S.A.s, standard mileage rates and more for 2020.
You can find the new 2020 tax tables, standard deduction amounts, and more in our prior article – we unveiled them as soon as the IRS did. Click here: https://www.fuoco.com/resources/tax-alerts/505-breaking-news-about-2020-tax-brackets-and-rates.
Highlights of Changes to IRAs, 401(k), 403(b), and Most 457 Plans for 2020
• The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500.
• The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019.
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2020. Rules apply! If during the year, either the taxpayer or their spouse were covered by a retirement plan at work, the deduction may be reduced, or phased out, depending on filing status and income. If neither party was covered by a retirement plan at work, the phase-outs of the deduction do not apply. Here are the phase-out ranges for 2020:
• For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000, up from $103,000 to $123,000.
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $196,000 and $206,000, up from $193,000 and $203,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
• The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000.
• For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000.
• The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
• The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.
Key limit remains unchanged! The limit on annual contributions 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.
The SECURE Act made some key changes to rules regarding retirement plans. If you missed our prior articles, there is a big impact for employers as well as employees. Click here: https://www.fuoco.com/resources/tax-alerts/517-retirement-planning-and-the-secure-act-. Employer tax credits addressed here: https://www.fuoco.com/resources/tax-alerts/525-your-business-can-take-advantage-of-secure-act-tax-credits
Mileage Rates
The IRS has announced the standard mileage rates for 2020, for the use of a car, van, pickup or panel truck, effective January 1st. Standard mileage rates are used to calculate the amount of a deductible business, moving, medical, or charitable expense. To use the rates, simply multiply the standard mileage rates below by the number of miles traveled:
• 17 cents per mile driven for medical or moving purposes (down from 20 cents in 2019)
• 14 cents per mile driven in service of charitable organizations (currently fixed by Congress)
What about business mileage? If you use your car for more than just biz travel, you’ll want to keep appropriate records and back out the cost of personal use. You can no longer claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. That deduction was eliminated from Schedule A alongside similar deductions like the home office deduction. This does not affect any deductions that are correctly claimed on a Schedule C for the self-employed, freelancers, and independent contractors.
Health Savings Accounts
Inflation-adjusted limits for health savings accounts for calendar year 2020 have also been announced by the IRS:
• The annual limitation on deductions for an individual with family coverage under a high deductible health plan is $7,100.
A “high deductible health plan” is defined for 2020 as a health plan with an annual deductible of not less than $1,400 for self-only coverage or $2,800 for family coverage, and where the annual out-of-pocket expenses, like deductibles, co-payments and other amounts, but not premiums, don’t exceed $6,900 for self-only coverage or $13,800 for family coverage.
New Form W-4 for 2020
The new form provides simplicity, accuracy and privacy for employees, while minimizing the burden for employers and payroll processors. It promises to eliminate the problem of having too much or too little tax withheld in 2020. What you need to know as an employer or an employee can be found in our prior article: https://www.fuoco.com/resources/tax-alerts/520-what-you-need-to-know-about-the-new-2020-w4.
The IRS also launched a new Tax Withholding Estimator, an online tool that makes it easy to have the right amount withheld. Access it here: https://www.irs.gov/individuals/tax-withholding-estimator
The Fuoco Group is ready for 2020 – are YOU? This is the perfect time to do some tax planning to make sure that you’re on track for the new year, and ensure there are no unnecessary surprises down the road for your business or your family. We advise that you at least do the following:
2. Take a look at beneficiary designations.
3. Review estate planning documents.
4. Establish and use good data security habits.
5. If applicable, contact us with questions about cryptocurrency and offshore accounts.
Contact Us: Tax filing season happens only once a year, but tax planning and compliance should be a year-round activity. Taking a few steps early in the year to get organized for tax-efficiency and IRS compliant means no surprises at tax time! Call us toll free at 855-534-2727.
