2019 Income Tax Brackets

Never too early to organize your tax documents for 2019

Although the tax deadline for filing and paying 2019 federal income taxes is still months away, it’s never too early to get organized.

On a yearly basis (usually in November) the IRS adjusts as many as 40 tax provisions for inflation. This is done to prevent what is called “bracket creep,” when people are pushed into higher income tax brackets or have reduced value from credits and deductions due to inflation, instead of any increase in real income. In some cases the changes may seem minimal, but hey – a penny saved is a penny earned!

The IRS used to use the Consumer Price Index (CPI) to calculate the past year’s inflation. However, with the Tax Cuts and Jobs Act of 2017, the IRS will now use the Chained Consumer Price Index (C-CPI) to adjust income thresholds, deduction amounts, and credit values accordingly. Below see the updated tax brackets for 2019.

Income Tax Brackets and Rates

In 2019, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows (Tables 1). The top marginal income tax rate of 37 percent will hit taxpayers with taxable income of $510,300 and higher for single filers and $612,350 and higher for married couples filing jointly.

Table 1. Tax Brackets and Rates, 2019
Rate For Unmarried Individuals, Taxable Income Over For Married Individuals Filing Joint Returns, Taxable Income Over For Heads of Households, Taxable Income Over
10% $0 $0 $0
12% $9,700 $19,400 $13,850
22% $39,475 $78,950 $52,850
24% $84,200 $168,400 $84,200
32% $160,725 $321,450 $160,700
35% $204,100 $408,200 $204,100
37% $510,300 $612,350 $510,300

Standard Deduction and Personal Exemption

The standard deduction for single filers will increase by $200 and by $400 for married couples filing jointly (Table 2).

The personal exemption for 2019 remains eliminated.

Table 2. 2019 Standard Deduction and Personal Exemption
Filing Status Deduction Amount
Single $12,200
Married Filing Jointly $24,400
Head of Household $18,350

 

Today is IRS Tax Filing Deadline Day.

How do I file a tax extension for 2019?

Today is the deadline for filing and paying 2018 federal income taxes.  Any filings after today that are not on extension will be considered late and subject to penalties and interest assessments.   Remember if you mail in your return, it must be postmarked today, so make sure that the mailing service you are using whether it be the US Postal service drop-off or other have a collection time that will meet the April 15th postmark deadline.

In the event that you cannot file your tax return by the deadline, you need to file for a tax extension, which is also subject to the above April 15th postmark deadline.  To get a filling a tax extension, you will need to submit Form 4868(Application for Automatic Extension of Time To File U.S. Individual Income Tax Return).

The IRS also allows you to get an extension by paying all or part of your estimated income tax due and indicate that the payment is for an extension using Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a credit or debit card.  This way you won’t have to file a separate extension form and you will receive a confirmation number for your records.

It is important to note that, an extension to file will give you six more months to file your taxes, until Oct. 15. It does not however, give you extra time to pay your taxes.  You still must estimate and pay what you owe by April 15.  You will be charged interest on any amount not paid by the deadline.  Below are the 2018 Income Tax Brackets to assist you estimate how much money you will need to send (if any) along with your Form 4868.

2018 Income Tax Brackets and Standard Deduction Rates

Table 1. 2018 Income Tax Brackets and Rates

 

Table 2. 2018 Personal Exemption and Standard Deduction

The personal exemption for 2018 is eliminated

 

 

 

Understanding The New Tax Code: How It Affects You

The Tax Cuts and Jobs Act (TCJA) was signed into law by President Donald Trump on December 22, 2017.  The TCJA has brought with it many sweeping changes to a broad part of the tax code. Some of the notable changes include:

(1) Elimination of personal exemptions – previously taxpayers were allowed to subtract $4,500 from their income as a personal exemption.

(2) Elimination of the “personal mandate” enforced by the Affordable Care Act (known more commonly by many as “Obamacare”) – it is important to note that the elimination of this penalty did not go into effect until January 1, 2019. Hence, if you failed to obtain “qualifying health coverage” in 2018, the IRS will assess the penalty.

(3) Expansion of the Child Tax Credit – the TCJA increased the Child Tax Credit from $1,000 to $2,000. The income level at which point the tax credit phases out has been raised from $110,000 to $400,000 for married tax filers. The age cut-off stays at 17 (child must be under 17 at the end of the year for taxpayers to claim the credit).  The refundable portion (applicable to parents who do not earn enough income to pay taxes) of the credit is limited to $1,400.  This amount will be adjusted for inflation after the 2018 tax year.

(4) Standard deduction for single filers increased by $5,500 and by $11,000 for married couples filing jointly (see Table 2 below).  Most itemized deductions eliminated.

(5) Mortgage Interest Deduction Reduced (learn more).

(6) If you’re caring for an elderly parent, you can get a $500 credit for each non-child dependent.

(7)  Tax table changes (see Table 1 below)

To protect individuals that are pushed into higher income tax brackets due to reduced value from credits and deductions instead of increase in real income (known as “bracket creep”), the act also requires that the IRS adjust numerous tax provisions for inflation.

2018 Income Tax Brackets and Standard Deduction Rates

Table 1. 2018 Income Tax Brackets and Rates

 

Table 2. 2018 Personal Exemption and Standard Deduction

The personal exemption for 2018 is eliminated

 

 

 

IRS Is Not Fooling Around With Retirees on April 1!

Although many retirees may not need to withdraw money from their retirement accounts (IRAs, SEP IRAs and 401(k) plans to name a few), April 1st could cost some of them as much as a “50% excise tax” if they do not take any contributions, and this is no April Fools’ Joke!

 

The Reason & Who’s Affected?

As delightful and rewarding as tax-deferred retirement saving plans like IRAs can be, there is a very important IRS Rule known as Required Minimum Distributions (RMDs) that needs to be observed or the penalties can be severe. Generally speaking, all taxpayers (there are a few exceptions we will discuss later) with these types of accounts must start taking mandatory minimum distributions from their retirement accounts once they reach the age of 70½. The importance of the April 1st deadline is that it applies to the first year after which a taxpayer turns 70½.  Going forward each taxpayer is required to take the RMDs by the end of each calendar year (we provide the IRS worksheets to calculate the required minimum amount of distribution below). There is a caveat, if you are retired and your 70th birthday was say July 1, 2018. You reached age 70½ on January 1, 2019. You do not have an RMD for 2018. You must take your first RMD (for 2019) by April 1, 2020.  Of course, for those who turned 70½ June 30th or earlier in 2018, you must observe the upcoming April 1st deadline.

Failure To Take The Required Minimum Distribution

The consequences for failing to take the Required Minimum Distributions (RMDs) can be severe, as taxpayers would be subject to pay an excise tax of up to 50% on the amount not distributed as required. The IRS is flexible regarding how you can choose to take your RMD.  For instance, if you have more than one account that is subject to the Required Minimum Distributions (RMD), you can elect to withdraw the combined RMD from one account, provided that the total minimum for all accounts is withdrawn during the calendar year in question.

RMDs

What Plans Are Subject to RMDs?

The minimum distribution rules apply to:

  • traditional IRAs
  • SEP IRAs
  • SIMPLE IRAs
  • 401(k) plans
  • 403(b) plans
  • 457(b) plans
  • profit sharing plans
  • other defined contribution plans
*  Roth IRAs do not require withdrawals until after the death of the owner.

Below you will find the IRS RMD Worksheets:

IRA Required Minimum Distribution Worksheet

(Source: https://www.irs.gov/)

 

IRA Required Minimum Distribution Worksheet (if your spouse is the sole beneficiary of IRA and he or she is more than 10 years younger)

(Source: https://www.irs.gov/)