Photo of a man who learned how tax reform will affect him.

Filing your taxes in 2020: What to remember this year

The Tax Cuts and Jobs Act that took effect in 2018 brought a lot of changes. And the United States Tax Code can be complex. That’s why “it’s important to review your tax situation every year,” says Tyler De Haan, director of business development—retirement solutions for Principal®. “As life changes, so could your tax situation.”

Brush up on tax know-how here. It may help minimize your tax bill and avoid blunders that could cost you money.1

Update: You now have until July 15, 2020 to file and pay your 2019 taxes, thanks to the CARES Act, an economic stimulus package passed in March 2020. 

Find your 2019 tax bracket

Know where you fall in the federal tax bracket, especially if you’ve had a drastic change in salary in the last year. Your earnings from 2019 apply to the tax return you file this season.

Income Tax RatesSingle Married Filing Jointly
10%$0 to $9,700$0 to $19,400
12%$9,701 to $39,475$19,401 to $78,950
22%$39,476 to $84,200$78,951 to $168,400
24%$84,201 to $160,725$168,401 to $321,450
32%$160,726 to $204,100$321,451 to $408,200
35%$204,101 to $510,300$408,201 to $612,350
37%$510,301+$612,351+

Review tax reform changes

We’ve summarized what you need to remember about last year’s tax reform so you can hit the ground running this tax season.

1. Changes in retirement plans

If you have a traditional individual retirement account (IRA), you’re allowed to convert it to a Roth IRA. However, you can’t move money back to a traditional IRA after you convert. This is called a recharacterization.

Also, when you’ve taken a loan from your 401(k) account, you’ll have more time to repay that loan if you leave your employer, which helps avoid potential early withdrawal penalties or income recognition, depending on your age at the time.

If you have an outstanding loan from your retirement plan with repayment due in 2020, you can delay your repayments for up to one year. Subsequent payments will be adjusted to account for the delay. This change is part of the CARES Act.

Learn more: Retirement savings can help lower your taxable income  

2. Increase in standard tax deduction

The Tax Reform Act of 2017 nearly doubled the standard deduction. For 2019 filing these amounts are: $12,200 for single filers, $18,350 for head-of-household filers, and $24,400 for married couples filing jointly.1

Learn more: Credits and deductions for individuals

3. Changes in withholdings

Major changes from tax reform may have affected your refund in 2019, so the IRS recommends checking your tax withholding every year or when a big life event happens. If you got a second job, changed jobs, or your spouse changed jobs this year, you may want to re-evaluate it. The amount you withhold can impact your tax refund.

After you’ve reviewed your withholding, it may help to re-evaluate your retirement contributions. Curious about the long-term impact of putting a little extra toward your retirement savings? Enter three numbers into our Retirement Wellness Planner and you’ll get a score that lets you know how you’re doing toward your retirement savings goals. Then you can make a simple adjustment to see the potential long-term impact of contributing just 1% more from your paycheck.

4. No more personal exemptions

You used to be able to claim a $4,050 personal exemption for yourself, your spouse, and each of your dependents to lower your taxable income. This exemption was eliminated in the 2017 tax bill in favor of increasing the standard deduction.

5. Limits on state and local tax deductions

Assuming you itemize deductions, you can now take a $10,000 maximum deduction—$5,000 if married filing separately (MFS)—on any combination of state and local income, real estate, and personal property taxes. Alternatively, you may elect to substitute state and local sales taxes for income taxes, but you can’t use both.

6. Lower limit on mortgage interest deduction

The Act set a cap on the total amount of mortgage debt for which you can deduct mortgage interest paid: up to $750,000 ($375,000 if MFS) if you take out a new loan for a first or second home between December 15, 2017, and December 31, 2025. If the tax act is not extended, the cap will revert to total mortgage indebtedness of $1,000,000 ($500,000 if MFS).

If you already have a mortgage, your debt is grandfathered, and you can refinance without losing the $1,000,000 cap, if you don’t increase the debt by refinancing. However, if you have a grandfathered mortgage and acquire a second home, the new cap will apply to limit the second home mortgage to the $750,000, less the grandfathered mortgage up to $750,000.

Interest from home equity loans is no longer deductible, regardless of when the indebtedness was incurred.

7. Maintain exclusion for sale of your primary home

Should you decide to sell your primary residence, and you’ve lived there for two of the last five years, single filers can still exclude up to $250,000 (married couples up to $500,000) from capital gains taxes. This is a tax levied on profits you make when you sell for a price higher than what you originally paid, plus the cost of upgrades other than simple maintenance and repairs.

8. Expand child tax credit (CTC)

The credit doubles to $2,000 per child until age 17. For lower income taxpayers, up to $1,400 of this credit is refundable in cash per child. The CTC is also available to more households now. You can claim the full CTC if your adjusted gross income (AGI) is $200,000 or less for single parents, $400,000 AGI or less for married couples. You can also take a $500 credit if you support a dependent who is not a child (e.g., elderly parent who depends on you for care, an adult child with a disability).

9. Reduce who's hit by alternative minimum tax (AMT)

The Act keeps the AMT but reduces the number of people who will be impacted by raising the income exemptions. For 2019 filing: $71,700 for single or head of household, and $111,700 for married filing jointly or widow(er).

10. Exempts nearly everybody from the estate tax

The amount of money exempt from the estate tax doubled. For 2019 those numbers are $11.4 million for a single filer or $22.8 million for a married couple. Since only 0.2% of all estates are large enough to be hit by estate taxes, this only applies to a small number of people.

Get a head start

To alleviate some of the stress that comes with filing your taxes, start getting your tax-related forms and information pulled together in one spot. Note any big life events that could impact your taxes—getting married, divorced, having a child, or buying a home—and have those documents handy, too.

Have more tax questions? Our tax FAQs can help point you in the right direction. Then connect with your tax professional.

Next steps

1 Change will likely sunset after 2025 and revert to its 2017 numbers, adjusted for inflation. These rates are imposed on taxable income, meaning income remaining after applicable exclusions, deductions and exemptions are claimed. Note that each rate applies only to income falling within that bracket. For additional information and other filing status’ and brackets go to irs.gov.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

The Retirement Wellness Planner information and Retirement Wellness Score are limited only to the inputs and other financial assumptions and is not intended to be a financial plan or investment advice from any company of the Principal Financial Group® or plan sponsor. This calculator only provides education which may be helpful in making personal financial decisions. Responsibility for those decisions is assumed by the participant, not the plan sponsor and not by any member of Principal®.  Individual results will vary.  Participants should regularly review their savings progress and post-retirement needs.  

Insurance products and plan administrative services provided through Principal Life Insurance Co., a member of the Principal Financial Group®, Des Moines, IA 50392.