List of 10 Ways Your Income Taxes Will Be Different

1. Waived RMDs

Retirement assets were exempted from required minimum distributions (RMDs) in 2020 under the CARES Act, also known as the Coronavirus Aid, Relief, and Economic Security Act of 2020. RMDs are often treated as taxable income. Some retirees may have had lower taxable income in 2020 as a result of this one-time relief, owing less in federal income taxes in 2021.

 

2. A charitable deduction available to all

Normally, you may deduct tax-deductible charitable donations on your federal tax return only if you itemize your deductions rather than using the standard deduction, which has grown in popularity since the 2017 tax overhaul.

The CARES Act, however, allows taxpayers to deduct up to $300 in monetary gifts in 2020, even if they use the standard deduction, in an effort to encourage Americans to contribute money to charity during the coronavirus epidemic.

 

3. Higher standard deductions

Standard deductions often increase each year when inflation is factored in. According to the IRS, the standard deduction amounts for the following tax-filing statuses for 2020 are as follows:

• Married couples filing jointly: $24,800, up to $400 from last year.
• Separately filed returns for married couples: $12,400, an increase of $200.
• Head of household: $18,650, an increase of $300.
• Single: $12,400 — an increase of $200

The standard deduction reduces the amount of your income subject to federal taxation. So, if a single person qualifies for the standard deduction and elects to use it instead of itemizing deductions on their 2020 tax return, they will not be taxed on the first $12,400 of their income.

 

4. Higher income brackets

Annually, the income tax brackets also tend to grow. For those who file their taxes as singles in 2020, the income tiers are as follows:

• A tax rate of 37 percent is applied to the taxable income of more than $518,400.
• More than $207,350 but not more than $518,400 (35%)
• More than $163,300 but not more than $207,350 (32%)
• More than $85,525 but not more than $163,300 (24%)
• Greater than $40,125 but less than $85,525. 22 percent : more than $40,125 but less than $85,525.
• More than $9,875 but not more than $40,125 (12%).
• 10% of the population has an annual income of $9,875 or less.

Pages 5-7 of IRS Revenue Procedure 2019-44 include comprehensive 2020 tax rate tables for all tax-filing statuses. See pages 8-10 of Internal Revenue Bulletin 2018-57 for a comparison with the 2019 tables.

 

5. Higher contribution limits for (some) retirement accounts

In 2020, you may be able to save more money in a variety of workplace retirement plans.

For 401(k) plans, for example, the base contribution maximum is $19,500, up from $19,000 in 2019. The maximum catch-up contribution for taxpayers 50 and older is now $6,500, up from the previous ceiling of $6,000. So, in 2020, those over the age of 50 can contribute a total of $26,000 to a 401(k).

 

6. Higher contribution limits for HSAs

Workplace retirement plans aren’t the only option. Each year, the contribution limitations for health savings accounts (HSAs) rise, and 2020 is no exception.

The following are the contribution limitations for those who are qualified for an HSA in 2020 and have high-deductible health insurance policies:

• $3,550 for self-only coverage, rising from $3,500 in 2019.
• $7,100 for a family, up from $7,000 previously.

 

7. Higher income limits for the saver’s credit

The saver’s credit, often known as the retirement savings contributions tax credit, will have greater income limitations in 2020. As a result, more people will be able to benefit from this little-known tax credit.

If your adjusted gross income, or AGI (reported on your tax return), is less than the following amounts in 2020, you may be eligible for this benefit.

• $65,000 for married couples filing jointly, up from $64,000 in 2019.
• $48,750 for the head of household, up from $48,000 before.
• $32,500 for all other tax-filing statuses, up from $32,000 previously.

 

8. A more valuable adoption tax credit

By 2020, the tax credit for eligible adoption expenditures will be more significant. The maximum credit amount is $14,300, an increase from $14,080 in 2019.

 

9. A more valuable earned income tax credit

The earned income tax credit (EITC) income limitations and maximum credit amount are both increased in 2020.

If your AGI is less than, you may be eligible for the EITC on your 2020 tax return.

• $56,844 for married couples filing jointly, up from $55,952 in 2019.
• $50,594 (increased from $50,162) for all other tax-filing statuses

The maximum EITC amount for 2020 is $6,660, up from $6,557 in 2019.

 

10. A higher cap on Social Security payroll taxes

Some people may be disappointed to learn that the maximum amount of a worker’s income due to Social Security payroll taxes has increased to $137,700 in 2020, up from $132,900 in 2019.

 

 

Wrapping up- 10 Ways Your Income Taxes Will Be Different in 2021

Finally, we hope this article can help you to explore Income Taxes. If you really think this article helps you then don’t forget to appreciate our efforts in the comments below.

Source: www.techforu.in