INDIVIDUAL UPDATE – 2020

• Filing Due Date – The filing due date for Form 1040 (individual tax return) is April 15, 2020.
• Alimony – Effective January 1, 2019, alimony or separation maintenance payments are no longer deductible by the payor, nor includible in the income of the payee. This change does not impact divorce or separation agreements entered into prior to 2019, nor those altered after 2018 where the changed new method of taxation is not expressly stated to apply.
• Income Tax Rate – There are seven federal tax brackets for 2019: 10.0 percent, 12.0 percent, 22.0 percent, 24.0 percent, 32.0 percent, 35.0 percent and 37.0 percent.
  • 10.0 percent income thresholds
    • Single and Married filing separately $0-$9,700
    • Married filing jointly $0-$19,400
    • Head of Household $0-13,850
  • 12.0 percent income threshold
    • Single and Married filing separately $9,701-$39,475
    • Married filing jointly $19,401-$78,950
    • Head of Household $13,851-$52,850
  • 22.0 percent income threshold
    • Single and Married filing separately $39,476-$84,200
    • Married Filing jointly $78,951-$168,400
    • Head of Household $52,851-$84,200
  • 24.0 percent income threshold
    • Single and Married filing separately $84,201-160,725
    • Married Filing jointly $168,401-$321,450
    • Head of Household $84,201-$160,700
  • 32.0 percent income threshold
    • Single and Married filing separately $160,726-$204,100
    • Married Filing jointly $321,451-$408,200
    • Head of Household $160,701-$204,100
  • 35.0 percent income threshold
    • Single and Married filing separately $204,101-$510,300
    • Married Filing jointly $408,200-$612,350
    • Head of Household $204,101-$510,300
  • 37.0 percent income threshold
    • Single and Married filing separately $510,301 or more
    • Married Filing jointly $612,351 or more
    • Head of Household $510,301 or more

• Capital Gains/Dividends – The top rate of 20.0 percent applies to taxpayers in the upper 35.0 percent tax bracket and above. The lower capital gain/dividend rates are zero percent for taxpayers in or below the 12.0 percent tax bracket; and 15.0 percent for taxpayers above the upper 12.0 to 35.0 percent tax bracket.
• 401(k) and 403(b) – The maximum employee contribution for 2019 and 2020 is $19,000 and 19,500, respectively. Individuals age 50 by the end of the year may contribute an additional $6,000 for 2019 and $6,500 for 2020. Beginning January 1, 2020, part-time workers are allowed to participate in 401(k) plans.
• Simple IRA/401(k) – The maximum employee contribution for 2019 and 2020 is $13,000 and $13,500, respectively. Individuals age 50 or over may contribute an additional $3,000 for 2019 and 2020.
• Defined Contribution – The maximum employer/employee combined contribution for 2020 increases to $57,000, up from $56,000 in 2019. (And adding any respective catch-up contributions noted above). The deadline to contribute is the date your individual tax return (with extension) is timely filed.
• IRA/Roth IRA – The maximum IRA/Roth IRA remains unchanged at $6,000. Individuals age 50 or over may contribute an additional $1,000. The deadline to contribute is the due date of the individual tax return (without extension). Effective January 1, 2020, the age for required minimum distributions is raised from 70 ½ to 72.
• Gift Tax – The 2019 annual exclusion for gifts remained the same at $15,000 per year per donee. If you are married, you may gift $30,000 per donee ($15,000 for you & $15,000 for your spouse).
• Health Savings Account (HSA) Contributions – The HSA maximum family contribution for 2020 increases to $7,100 and the maximum single contribution increases to $3,550. If you are over the age of 54 and not on Medicare, an additional $1,000 for both family and single coverage may be contributed. The deadline to contribute or make corrections to avoid penalties is the due date of the individual tax return (excluding extensions).
• Flexible Spending Account (FSA) – The maximum contribution for 2020 is $2,750, which is a $50 increase from 2019.
• Personal Exemptions – Beginning in 2018, there will no longer be personal exemptions.
• Standard Deduction – The 2019 standard deduction increases from $12,000 in 2018 to $12,200 for single taxpayers, and from $24,000 in 2018 to $24,400 for married filing jointly taxpayers. The standard deduction for heads of household rises to $18,000 up from $18,350.
• Estates – The federal estate exclusion for 2019 increases to $11,400,000 per individual to $11,580,000 for 2020. Minnesota estate exclusion for 2019 is $2,700,000 & $3,000,000 for 2020.
• Miscellaneous Standard Deductions – Miscellaneous standard deductions are no longer deductible; this includes unreimbursed employee expenses. Minnesota will continue to allow employee business expenses following the prior law.
• Mortgage Interest – The limitation for deductible mortgage interest has been reduced from $1,000,000 worth of acquisition indebtedness to $750,000 for mortgages beginning after December 15, 2017.
• Medical Expenses – The threshold for deducting medical expenses remains at 7.5 percent in 2019 and 2020 after the recently enacted SECURE Act.

Minnesota Governor Walz signed the Omnibus Tax Bill on May 31, 2019.  With the signing of this bill, Minnesota’s individual income tax law will now largely conform to the federal tax law. MMKR can help you navigate the complexities of the tax code.