Find Out About the Most Important Changes to Your 2020 Taxes

UPDATE: The Internal Revenue Service (IRS) has extended the tax filing deadline by one month, to May 17, 2021 to accommodate new stimulus payments and a backlog of tax returns. The IRS is also giving individuals who owe money on their 2020 tax returns until May 17, 2021, to make those payments. Individuals can also make contributions to individual retirement accounts (IRAs) for 2020 until May 17, 2021. Due to severe weather, residents of Texas, Oklahoma, and Louisiana have until June 15, 2021 to file, make tax payments, and contribute to their IRAs. Taxpayers who request an extension on the deadline will have until October 15, 2021, to file. You can get more information here.

The only thing people hate may hate more than paying taxes is keeping up with changes to tax laws.

Every year, the IRS  releases inflation adjustments to existing tax brackets, along with any other tweaks to next year’s taxes. Below are the changes that were announced in 2019 for the 2020 tax year. These changes follow the sweeping changes to tax laws in 2018 and will apply to the income you earn in 2020.

It’s a good idea to familiarize yourself with these changes when you file your taxes for 2020, which most people will do by April, 2021. Read on to find out more.

What changed?

Like last year, there are seven tax brackets, and the tax rate, or the percentage at which income in these brackets is taxed, also remains the same. However, the income levels for each bracket have changed slightly, to adjust for increases to the cost of living. The standard deduction has also gone up for both single filers and married people who file jointly. The standard deduction is the flat deduction amount you get if you don’t itemize your taxes.

Whether you’re filing individually or jointly, you can see which bracket applies to you below:

2020 Federal Income Tax Rates, Unmarried Individuals

*Source: IRS

2020 Federal Income Tax Rates, Married Filing Jointly

*Source IRS

(You can find how the 2020 tax rates compare to those for 2019 here.)

What else has changed?

• The standard deduction went up this year. If you’re filing individually, the standard deduction is $12,400, an increase of $200. If you’re married and filing jointly, the standard deduction increased by $400 to $24,800.
• The annual contribution limit for 401(k) and 403(b) retirement accounts also increased by $500 to $19,500 for people who are age 50 and under. For people 50 and over, the catch-up contribution also increased by $500 to $6,5000. (You can find out more about these changes here.)

How do I figure out my tax bracket?

Remember, though, that while you’ll pay more taxes as your income increases, you don’t pay the full tax amount on your income based on your bracket. For example, if your adjusted gross income (the income you claim after deductions) is $50,000 annually and you’re filing individually, your income would be taxed as follows:

• The first $9,875 will be taxed at 10%
• The income between $9,876 and $40,125 will be taxed at 12%
• And finally, the income from $40,126 to $50,000 will be taxed at a 22% rate.

Note: In October, 2020, the IRS issued inflation-adjusted tax brackets and other changes for the 2021 tax year. These brackets will be applicable for most people who will file their 2021 taxes in 2022. The IRS also increased the standard deduction for 2021. Learn more here.

Whether you file your own taxes or outsource the job to a tax professional, it’s important to stay informed as tax laws change so you know what’s happening to your hard-earned money.