The late, great Yogi Berra summed up the effects of inflation when he famously said, “A nickel ain’t worth a dime anymore!” Although inflation can be detrimental to your pocketbook, certain annual inflation adjustments to many federal tax provisions benefit taxpayers by allowing the tax laws to keep pace with inflation.
In November of each year, the IRS publishes the annual inflation adjustments which are effective for the following calendar year. Last November, the IRS issued the 2019 annual inflation adjustments. Numerous tax provisions were affected—here are some of the key adjustments.
2019 Tax Rates and Brackets
The income tax rates for 2019 remain the same as they were for 2018 (as enacted by the Tax Cuts and Jobs Act—TCJA—signed into law at the end of 2018), as shown below. However, the income perimeters for each tax bracket have been increased slightly for 2019.
For example, you will pay tax at the rate of 10% on the income you earned in 2018 up to $19,050 if you were married filing jointly. That increases to $19,400 in 2019—a difference of just $350. The increases are more significant at higher income levels. For example, last year the 24% tax bracket for married taxpayers filing jointly started at $165,001. For 2019, the same bracket starts at $168,400—a difference of $3,399.
Here are the 2019 tax rates and brackets:
- 37% for single individuals with income over $510,300 ($612,350 for married couples filing jointly)
- 35% for single individuals with income over $204,100 ($408,200 for married couples filing jointly)
- 32% for single individuals with income over $160,725 ($321,450 for married couples filing jointly)
- 24% for single individuals with income over $84,200 ($168,400 for married couples filing jointly)
- 22% for single individuals with income over $39,475 ($78,950 for married couples filing jointly)
- 12% for single individuals with income over $9,700 ($19,400 for married couples filing jointly)
- 10% for single individuals with income up to $9,700 ($19,400 for married couples filing jointly)
2019 Standard Deductions and Personal Exemptions
Personal exemptions were eliminated under the terms of the TCJA and that does not change in 2019—you still cannot claim a personal exemption for yourself or any of your dependents. But the amounts of the standard deductions (which were roughly doubled by the TCJA) have increased a bit, as they generally do each year to keep pace with inflation. The standard deductions for 2019 are:
- $12,200: Single taxpayers (up from $12,000 in 2018)
- $24,400: Married taxpayers filing jointly (up from $24,000 in 2018)
As was the case in 2018, many taxpayers who itemized deductions in the past will find themselves, in 2019, using the increased standard deduction instead, particularly given the $10,000 limitation on state and local tax (SALT) deductions imposed by the TCJA.
Medical Expense Deductions
The adjusted gross income threshold for deducting qualified medical expenses is 10% in 2019—up from 7.5% in 2018.
Alternative Minimum Tax (AMT)
The 2019 AMT tax exemption for single individuals is $71,700—up from $70,300 in 2018—and begins to phase out at $510,300 of income—up from $500,000 in 2018 ($111,700 exemption for married couples filing jointly—up from $109,400 in 2018—and begins to phase out at $1,020,600 of income—up from $1,000,000 in 2018).
Retirement Account Contributions
The maximum traditional and Roth IRA contribution limits have increased to $6,000 in 2019—up from $5,500 in 2018. The additional “catch-up” IRA contributions for taxpayers age 50 and older remains at $1,000 in 2019. The adjusted gross income phase-out range for Roth IRA contributions for single individuals is increased to $122,000-$137,000 in 2019—up from $120,000-$135,000 in 2018 ($193,000-$203,000 for married couples filing jointly—up from $189,000-$199,000 in 2018).
The maximum elective deferrals for 401(k) plans and 403(b) plans was increased to $19,000 in 2019—up from $18,500 in 2018. The additional “catch-up” contributions for taxpayers age 50 and older remains at $6,000 in 2019.
Estate and Gift Taxes
The federal estate and lifetime gift tax exemption has increased to $11,400,00 per person in 2019—up from $11,180,000 in 2019.
The New York State estate tax exemption has increased to $5,740,000 per person in 2019 —up from $5,250,000 between April 1, 2017 and December 31, 2018. (There is no gift tax in New York.)
The federal annual gift tax exclusion per donee remains at $15,000 in 2019 (the annual exclusion was increased with an inflation adjustment in 2018 to the same number—$15,000).
Hopefully, the information and numbers above may help you plan accordingly during 2019. Then, come November of this year when the IRS issues the inflation adjustments for 2020, it will be like “It’s déjà vu all over again!” (Another famous Yogiism.) Stay tuned.
Attorney Advertising. Prior results do not guarantee a similar outcome. This publication is provided as a service to clients and friends of Harter Secrest & Emery LLP. It is intended for general information purposes only and should not be considered as legal advice. The contents are neither an exhaustive discussion nor do they purport to cover all developments in the area. The reader should consult with legal counsel to determine how applicable laws relate to specific situations. ©2019 Harter Secrest & Emery LLP