Few things are worse than unpleasant surprises during tax season, but you can avoid them if you have a good idea of your liabilities as you start the new year. You should also understand the amounts of any tax perks the government is willing to make available to you. This is equally as important if you're considering going back and amending a previous year's return because you didn't get it right the first time.
The Internal Revenue Service (IRS) obligingly publishes a list of updated figures and inflation adjustments every November, scheduled to go into effect on the first of the new year. There are usually quite a few of them, as many as 40 or so annually. You can find a full list for 2019 in Revenue Procedure 2018-57.
This is retroactive tax planning! You won’t be using these numbers to prepare your 2020 tax return in 2021, but rather to go back and amend your 2019 tax return if necessary.
The 2019 Tax Brackets
The IRS increases the income perimeters for each tax bracket annually. This means you can earn a little more than you did the previous year without paying a greater percentage of taxes, but don’t get too excited. The difference is just a few hundred dollars in some cases.
For example, you would have paid 10% on the income you earned in 2018 up to $9,525 if you were single. That increased to $9,700 in 2019—a difference of just $175.
The changes are more significant at higher income levels. The 24% tax bracket started at incomes of $82,500 in 2018. It increased to $84,200 in 2019, a difference of $1,700.
Here’s how each filing status broke down in 2019:
|2019 Federal Tax Brackets|
|Tax Rate||Unmarried: Taxable Income Over||Married Filing Jointly: Taxable Income Over||Heads of Household: Taxable Income Over|
These are the same percentage rates and tax brackets that went into effect with the passage of the Tax Cuts and Jobs Act (TCJA) in 2018, but each accommodated a little more income in 2019.
2019 Standard Deductions and Personal Exemptions
Personal exemptions were eliminated under the terms of the TCJA, and that didn't change in 2019. You can’t claim them for yourself or any of your dependents, at least through 2025, when the TCJA potentially expires.
But the amount of standard deductions increased a bit in 2019, as they generally do each year to keep pace with inflation. The standard deductions were:
- $12,200: Single taxpayers (up from $12,000 in 2018)
- $12,200: Married taxpayers filing separate returns (up from $12,000 in 2018)
- $24,400: Married taxpayers filing joint returns (up from $24,000 in 2018)
- $24,400: Qualifying widow(er)s (up from $24,000 in 2018)
- $18,350: Heads of household (up from $18,000 in 2018)
Changes to Adjustments to Income
Several deductions available under the tax code can reduce your gross annual income to arrive at your adjusted gross income (AGI), even before you get around to claiming the standard deduction for your filing status or itemizing deductions to reduce your taxable income. They’re called "adjustments to income," and a couple of these were bumped up in 2019 as well.
Health Savings Accounts
The limit for salary reductions for employees who contribute to health flexible spending accounts (HSAs) increased from $2,650 in 2018 to $2,700 in 2019.
Medical Savings Accounts
The annual insurance deductible limits have also changed for those who have medical savings accounts. They were set at a bottom threshold of $2,350 for self-only plans in 2019—up from $2,300 in 2018—and an upper limit of $3,500, also up $50 from 2018.
The floor was a $4,650 annual deductible for family coverage up to a $7,000 maximum in 2019, a difference of $150 from 2018. The out-of-pocket expense limit for families was $8,550 in 2019.
Most Itemized Deductions Remain Unchanged
The IRS pretty much left itemized deductions alone in 2019, although these underwent a radical overhaul in 2018 due to the TCJA. Nonetheless, there were some minor changes.
The deduction for charitable donations remained more or less unchanged, because it underwent a shift in 2018, its first in quite a while. The deductible percentage limit for charitable cash donations was 50% in 2017, then it went up to 60% in 2018 and remained there in 2019.
Note that if you make a qualified contribution for relief efforts in a qualified disaster area in 2019, your deduction for the qualified contribution would be limited to 100% of your adjusted gross income minus your deduction for all other contributions.
Another not-quite-a-change was the repeal of the Pease limitations that used to prohibit higher-income individuals from claiming the full amount of their itemized deductions. Those limits went away in 2018 under the TCJA, and they remained gone in 2019.
The Medical Expense Deduction
The threshold for medical expense deductions reverted back to the 2016 percentage, up from 7.5% where it was set in 2017 and 2018 under the terms of the TCJA.
The deductible portion of your health insurance premiums and uninsured medical expenses was supposed to once again exceed 10% of your AGI beginning in 2019. You could only claim the balance as an itemized deduction, but Congress intervened to extend the 7.5% threshold through 2019.
The State and Local Tax Deduction
The cap on the state and local tax deduction (SALT) remained at $10,000 in 2019, and this limit still included property taxes. You might have spent $15,000 on these taxes, but you could only claim $10,000, and that dropped to $5,000 if you were married and filing a separate return.
The Mortgage Interest Deduction
The mortgage interest deduction remained limited to acquisition loans of no more than $750,000 in 2019, and it was only available for home equity loans where the proceeds are used to buy or substantially improve property. You could no longer claim the interest on equity loans if you used the proceeds to pay for college expenses, an unplanned emergency, or any other personal need.
Miscellaneous Itemized Deductions
Miscellaneous itemized deductions for things like unreimbursed work-related expenses and investment costs were repealed in 2018.
Changes to 2019 Tax Credits
Tax year 2019 adjusted some tax credits as well.
The Earned Income Tax Credit
The earned income tax credit—the one designed to help low-income taxpayers by putting some refund money in their pockets—is almost invariably adjusted for inflation on an annual basis. Maximum credits are based on both income and the number of children you’re supporting as dependents. They were set at the following figures in 2019:
- $6,557 for three or more children
- $5,828 for two children
- $3,526 for one child
- $529 if you have no children
These are maximum EITC amounts based on lowest income levels. Not all taxpayers qualified for this much. Income limitations put a ceiling on how much each taxpayer can claim.
These were very minor increases from 2018, but it was still money that Uncle Sam was willing to give you to erase your tax bill and provide you with some cash back if you qualified. The maximum credit for three or more children was $6,431 in 2018, so it increased by just $126, but you’d probably rather spend this money on your family than give it to the government.
The Lifetime Learning Credit
You could earn a little more in 2019 before you would be disqualified from claiming the Lifetime Learning tax credit for education expenses incurred by you, your spouse, or your dependents. The amount of the credit began reducing at AGIs of $116,000 for married taxpayers filing joint returns in the 2019 tax year, up $2,000 from the $114,000 limit in 2018.
The Child Tax Credit
The child tax credit isn’t adjusted for inflation, but the refundable part can sometimes be bumped up a little. Unfortunately, this didn't happen in 2019. The child tax credit was still a $2,000 credit with up to $1,400 of it refundable, the same as in 2018.
Income phase-outs remained set at AGIs of $200,000 for single taxpayers and $400,000 for those who are married and filing joint returns, also the same as in 2018.
The Adoption Credit
You could still claim a tax credit for adoption expenses in 2019. These credits were set at $14,080 for special-needs children and $13,810 for all other adoptions, subject to income phase-out limits for higher earners.
The same numbers applied to adoption assistance programs provided by employers. Assistance paid to you up to these limits remained excludable from income.
The Alternative Minimum Tax Exemption
The alternative minimum tax (AMT) got its start back in 1969, when Congress realized that some wealthier taxpayers were reducing their tax bills to approximately zero by claiming so many tax itemized deductions.
This tax effectively adds deductions back to individuals’ incomes for purposes of tax calculations. It applies to income levels over certain exemption amounts—the higher earners targeted by this tax.
It’s imperative that these exemptions be adjusted annually to match inflation, or an unintended consequence will occur: Some middle-income taxpayers could be pushed over the line and become subject to the negative tax consequences of a tax that was never designed to affect them in the first place, simply because of inflation.
The exemptions were therefore increased again in 2019. They were set at $71,700 for single taxpayers and $111,700 for those who were married and filiing joint returns. The AMT affected only those who earned more than these thresholds in 2019.
One Last Change
Congress had one last gift for taxpayers in 2019—the repeal of the shared individual responsibility penalty payable by those who neglected to purchase health insurance coverage under the terms of the Affordable Care Act (ACA). However, the ACA remained alive and well.
The Tax Foundation. "2019 Tax Brackets."
The Tax Policy Center. "How Did the TCJA Change the Standard Deductions and Itemized Deductions?"
The Tax Policy Center. "How Does the Deduction for State and Local Taxes Work?"
IRS. "2019 Instructions for Form 8863." Page 3.
North American Council on Adoptable Children. "Adoption Tax Credit 2019."