Early in the year is the best time to begin planning to minimize your income tax liability. The IRS and the Social Security Administration recently released 2019 figures you’ll need to do accurate planning calculations. In addition to a 2.8 percent cost-of-living adjustment for Social Security beneficiaries, the agencies announced details about adjustments to tax rate schedules, exemptions and various thresholds for deductions and credits.
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Tax rate tables: The highest marginal tax rate for individuals of 37 percent applies in 2019 to taxable income over $612,350 for married couples filing jointly and $510,300 for single taxpayers. This is an increase over the 2018 levels of $600,000 and $500,000, respectively.
The thresholds related to the 3.8 percent Medicare tax on unearned income and the 0.9 percent Medicare tax on wages and self-employment income remain unchanged for 2019 ($250,000 for married couples filing jointly; $200,000 for single filers), as these amounts are not indexed for inflation. Estates and trusts enjoy a slight increase in the 3.8 percent Medicare tax threshold, however, because that threshold is equal to the dollar amount at which the highest income tax bracket begins.
Editor’s note: This is the first of a two-part column covering new tax rates for tax-minimization planning. See part 2 here.
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Alternative minimum tax: For 2019, the AMT exemption increases from $109,400 to $111,700 for married couples filing jointly and from $70,300 to $71,700 for single filers. The AMT exemption is reduced by 25 percent of the amount by which alternative minimum taxable income in 2019 exceeds $1,020,600 for married couples filing jointly ($510,300 for single taxpayers).
For 2019, the 28 percent AMT rate applies to excess alternative minimum taxable income above $194,800 ($97,400 for married taxpayers filing separately).
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Deductions: The new standard deduction for married couples filing a joint return is $24,400 (up $400). For single individuals and married couples filing separate returns, the standard deduction is $12,200 for 2019 (up $200). The 2019 standard deduction for heads of household increases to $18,350 (up $350).
Individuals with adjusted gross income in excess of certain thresholds no longer need to “haircut” their total itemized deductions by the Pease limitation, which was removed under the new tax law.
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Child tax credit: The amount of the child tax credit that may be claimed for each qualifying child is $2,000. The child tax credit begins to phase out for married couples filing a joint return with modified AGI in excess of $400,000, or $200,000 for all other taxpayers. The child tax credit and the phase-out levels are not indexed for inflation. For lower-income taxpayers, a portion of the child tax credit for each qualifying child is refundable, and the refundable portion in 2019 is $1,400, which is the same as the 2018 level.
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Estate and gift tax: For 2019, the lifetime exclusion from estate and gift tax has increased from $11,180,000 to $11,400,000.
The annual gift tax exclusion in 2019 remains at $15,000. Gift splitting allows married couples to give up to $30,000 to a person without making a taxable gift. The exclusion for gifts to a spouse who is not a citizen of the United States increases by $3,000 to $155,000 for 2019.
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COLA limits for qualified plans: The COLAs affect the maximum limits for a variety of contributions and distributions for 2019, including defined benefit accounts, 401(k)s and other defined contribution plans, as well as limits on employee stock ownership plans and benefits to highly compensated employees.
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Foreign-earned income: For individual taxpayers who work overseas, the amount of foreign-earned income that may be excluded from taxation increases from $103,900 to $105,900 in 2019.
Joanna Powell is a managing director in the New England office of CBIZ & MHM, an accounting and tax provider with offices nationwide, including Providence and Boston.
