Know Before You File: Tax Breaks for Tax Year 2020

Care Health Elastic Bandage Accident Concept.
Rawpixel Ltd / iStock.com

Tax returns for the 2020 tax year are due by May 17, 2021. The IRS offers numerous tax deductions, exemptions and credits to lower your tax bill. Many of these tax breaks are indexed for inflation, which means they can change from year to year because the IRS determines them in advance.

Find Out: What Are the 2020-2021 Federal Tax Brackets and Tax Rates?

To stay up to date on tax law changes affecting you during the 2020 calendar year and impacting the tax return you file in 2021, here’s a breakdown of key 2020 tax year changes. Make sure your federal tax return status is current before you look to next year because you don’t want to have to deal with penalties for filing late.

Please note that The IRS has announced that the federal income tax deadline for individuals is May 17, 2021, for the 2020 tax year. State deadlines have not changed, however, so make sure to confirm your state’s due date before you file.

Tax-Bracket Income Thresholds Have Increased

Each year, there are several new tax laws that impact your federal tax return. For example, the government adjusts the income thresholds that determine tax brackets annually. They’re typically hiked so you can earn more in subsequent years without moving into a higher tax bracket.

Save for Your Future

Following are the limits that apply to your 2020 income for each filing status, as well as what they were in 2019 so you can compare. For example, you’ll see that if you’re married and filing jointly, you can earn $1,300 more in 2020 than you did in 2019 and still remain in the 12% tax bracket.

Find Out About: Tax Loopholes That Could Save You Thousands

Married Filing Jointly (and Surviving Spouse)
Tax Rate 2020 Taxable Income 2019 Taxable Income
10% $0 to $19,750 $0 to $19,400
12% $19,751 to $80,250 $19,401 to $78,950
22% $80,251 to $171,050 $78,951 to $168,400
24% $171,051 to $326,600 $168,401 to $321,450
32% $326,601 to $414,700 $321,451 to $408,200
35% $414,701 to $622,050 $408,201 to $612,350
37% $622,051+ $612,351+

 

Unmarried Individuals (Other Than Surviving Spouses and Heads of Households)
Tax Rate 2020 Taxable Income 2019 Taxable Income
10% $0 to $9,875 $0 to $9,700
12% $9,876 to $40,125 $9,701 to $39,475
22% $40,126 to $85,525 $39,476 to $84,200
24% $85,526 to $163,300 $84,201 to $160,725
32% $163,301 to $207,350 $160,726 to $204,100
35% $207,351 to $518,400 $204,101 to $510,300
37% $518,401+ $510,301+

 

Head of Household
Tax Rate 2020 Taxable Income 2019 Taxable Income
10% $0 to $14,100 $0 to $13,850
12% $14,101 to $53,700 $13,851 to $52,850
22% $53,701 to $85,500 $52,851 to $84,200
24% $85,501 to $163,300 $84,201 to $160,700
32% $163,301 to $207,350 $160,701 to $204,100
35% $207,351 to $518,400 $204,101 to $510,300
37% $518,401+ $510,301+

 

Married Individuals Filing Separate Returns
Tax Rate 2020 Taxable Income 2019 Taxable Income
10% $0 to $9,875 $0 to $9,700
12% $9,876 to $40,125 $9,701 to $39,475
22% $40,126 to $85,525 $39,476 to $84,200
24% $85,526 to $163,300 $84,201 to $160,725
32% $163,301 to $207,350 $160,726 to $204,100
35% $207,351 to $311,025 $204,101 to $306,175
3% $311,026+ $306,176+

The Standard Deduction Has Increased

The tax code allows you to subtract the year’s standard deduction from your adjusted gross income. You have a choice between using the standard deduction and using itemized deductions. If itemizing puts more money in your pocket, you’re free to use that number instead by filing Schedule A with your tax return.

Save for Your Future

Regardless of which method you chose on your 2020 tax return — standard deduction or itemizing — using these deductions might help you drop down to a lower tax bracket if you’re right on the borderline of one of the above thresholds.

The amount of the standard deduction you’re entitled to take each year is also indexed for inflation, and it will increase across the board in 2020. Here is how these deductions break down for 2020 compared to 2019 based on your filing.

Standard Deduction Amounts
Filing Status 2020 2019 Increase
Married Filing Jointly (& Surviving Spouse) $24,800 $24,400 $400
Married Filing Separately $12,400 $12,200 $200
Single $12,400 $12,200 $200
Head of Household $18,650 $18,350 $300

Check Out: 8 New or Improved Tax Credits and Breaks for Your 2020 Return

HSA Contributions Have Increased for Individuals

Contributions to a health savings account, also called an HSA, also can reduce your taxable income. The Internal Revenue Code allows you to contribute pretax dollars — income earned before your employer withholds taxes — to an HSA. Doing so decreases the amount of income upon which your withholding is based. The money you contribute can then be used to pay for qualified medical expenses.

“HSAs were created in 2003 so individuals covered by high-deductible health plans could receive tax-preferred treatment of money saved for medical expenses,” said Kristina Grasso, a master tax advisor with H&R Block.

Typically, you need to be enrolled in a high-deductible health plan to qualify for an HSA. “As long as you later use the HSA money to pay or reimburse yourself for permissible medical expenses, the distribution is tax-free,” Grasso said.

There’s a yearly limit to how much pretax income you can contribute. The limit for individuals goes up in 2020, but not by much — just $50, from $3,500 in 2019 to $3,550 this year.

The limit grows to $7,100 for families, up from $7,000 in tax year 2019. You can contribute an additional “catch-up” amount of $1,000 if you’re age 55 or older.

Tax Deductions: What Can I Write Off on My Taxes?

Tax Credits: Only the EITC Has Increased

The earned income tax credit is the government’s way of returning tax dollars to individuals and families with low to moderate incomes. It’s a refundable tax credit, which means that if it exceeds the taxes you owe, the IRS will send you a check for the balance. If you don’t owe any taxes, you receive the entire credit.

Qualifying for this credit depends on the number of child dependents you have, as well as on your filing status. Your income must fall below certain thresholds. Following are the thresholds for the 2020 tax year.

For tax year 2020, the maximum credit increases to:

  • $6,660 for taxpayers with three or more qualifying child dependents, up from $6,557 in 2020
  • $5,920 for taxpayers with two qualifying child dependents, up from $5,828 in 2020
  • $3,584 for taxpayers with one qualifying child dependent, up from $3,526 in 2020
  • Taxpayers with no children can qualify for a credit of $538, up from $529 in 2020

Sometimes, tax laws impact how and when you receive your refund. That’s true if you qualify for the earned income tax credit this year, as the IRS sometimes needs additional information about your return. In any event, if you claim the EITC, you won’t be able to receive your refund until the first week of March at the earliest, allowing the government time to investigate and ensure that all claims for the EITC are valid.

“A large part of the tax fraud that has taken place over the recent past has been by people claiming credits they were not entitled to,” said Enrolled Agent Dr. Steven J. Weil of RMS Accounting in Fort Lauderdale. “Expect more due diligence from the IRS this year.”

Weil said you should be ready to provide proof of dependency and your dependents’ Social Security numbers while the IRS checks to make sure you are entitled to the credit and that your claim is not fraudulent.

The AMT Tax Exemption Amount Has Increased

Created in the 1960s, the alternative minimum tax exemption amount was never adjusted until 2012, when the American Taxpayer Relief Act allowed for inflation adjustments. For 2020, the amount went up from $71,700 for singles to $72,900 and from $111,700 for married couples filing jointly.

AMT Tax Exemption Amount
Filing Status 2020 2019
Individual $72,900 $71,700
Married Filing Jointly $113,400 $111,700
Married Filing Separately $56,700 $55,850

The Death Tax Threshold Has Increased

The federal government also taxes the value of your property at the time of your death, but only if the estate exceeds specific thresholds, which are high. Your estate’s value must exceed $11.58 million in 2020 before estate taxes become due, an increase of $180,000 from 2019, when the exemption was $11.40 million.

Find Out: Common Mistakes People Make When Filing Their Own Taxes

The Biden Tax Plan and New Tax Laws

The Biden tax plan is still in the proposal stage, but will likely raise the top tax bracket to 39.6% for those earning more than $400,000. The proposal also increases corporate income tax rates to 28% from 21%. Biden also intends to impose the 12.4% Social Security tax on incomes above $400,000, and to convert capital gains tax rates to ordinary income tax rates for those earning more than $1 million annually, according to the Tax Foundation. Biden’s changes, if accepted, could significantly affect your tax return in the future, particularly if you’re an upper-income earner.

More From GOBankingRates

John Csiszar and Barri Segal contributed to the reporting for this article.

About the Author

Beverly Bird is a New Jersey-based writer specializing in personal finance and law. She has more than 30 years’ experience, including numerous published books. She offers personal finance workshops for single and divorced parents.

Untitled design (1)
Close popup The GBR Closer icon

Sending you timely financial stories that you can bank on.

Sign up for our daily newsletter for the latest financial news and trending topics.

Loading...
Please enter an email.
Please enter a valid email address.
There was an unknown error. Please try again later.

For our full Privacy Policy, click here.