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Taxes

10 Minute Read

Tax Season 2020: What You Need to Know

10 Minute Read

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Forget winter—tax season is coming, and the time to start getting ready is right now. The last thing you want to do is wait until the week before to try setting up an appointment with a tax advisor or to start digging through all your files looking for receipts from last August.   

We want you to be prepared to tackle your taxes before they tackle you. And to do that, we’re going to dig into what’s new for this tax season and what’s staying the same. Let’s break down the details and find out how those changes impact you this tax season!

Changes for the 2020 Tax Season That Affect Your 2019 Taxes 

OK, first a quick recap. When the 2018 tax reform law was passed, it changed tax rates and deductions and had millions of Americans taking a closer look at how they did their taxes.

Most of those changes went into effect when you filed your taxes last spring for the 2018 tax year, but there are still a few things that will be different when you file your 2019 taxes. And the coronavirus outbreak has also caused some changes you need to know about. 

Don’t let taxes stress you out. A tax pro is the way to go!

So what exactly is going to be different when you file your taxes this year? Here are the main highlights:

  • Due to the coronavirus outbreak, Tax Day has been pushed back to July 15, 2020.1
     
  • Income tax brackets increased in 2019 to account for inflation. 
     
  • The standard deduction increased to $12,200 for single filers and $24,400 for married couples filing jointly. 
     
  • There is no longer a penalty for not having health insurance coverage.2

Let’s take a closer look at each of these changes and some important details to know, to see how they’ll impact the way you file!

Coronavirus: Changes to the 2020 Tax Season

Let’s talk about the elephant in the room: COVID-19 (or, as most of the world calls it, the coronavirus). From social distancing to the way we wash our hands, this global pandemic has already impacted almost every area of our lives—and tax season is no exception.

In response to the coronavirus outbreak, the federal government pushed back Tax Day by three months—so the new deadline to file your tax return and pay any taxes you owe is July 15, 2020, instead of April 15.3

Now remember: This deadline extension only applies to federal income returns and taxes (including taxes on self-employment income), not state taxes. Some states, like Maryland and California, have already pushed back their deadlines, but others might not—so check with your state agencies for the latest details.

Income Brackets and Tax Rates for 2019

Here’s a refresher on how income brackets and tax rates work: Your tax rate (the percentages of your income that you pay in taxes) is based on what tax bracket (income range) you’re in.

For example, if you’re single and your income is $75,000, then you’re in the 22% tax bracket. But that doesn’t mean your tax rate is a flat 22%. Instead, part of your income is taxed at 10%, another part at 12%, and the last part at 22%. (You can check out the chart below to see all the tax brackets with their corresponding tax rate.)

For the 2019 tax year, the tax rates are the same—but there are some slight changes to the brackets. Basically, the brackets have been adjusted by a few hundred dollars from 2018 to account for inflation.4

 

2019 Marginal Income Tax Rates and Brackets

2019 Marginal Tax Rates

Single Tax Bracket

Married Filing Jointly Tax Bracket

Head of Household Tax Bracket

Married Filing Separately Tax Bracket

10%

$0 - $9,700

$0 - $19,400

$0 - $13,850

$0 - $9,700

12%

$9,701 - $39,475

$19,401 - $78,950

$13,851 - $52,850

$9,701 - $39,475

22%

$39,476 - $84,200

$78,951 - $168,400

$52,851 - $84,200

$39,476 - $84,200

24%

$84,201 - $160,725

$168,401 - $321,450

$84,201 - $160,700

$84,201 - $160,725

32%

$160,726 - $204,100

$321,451 - $408,200

$160,701 - $204,100

$160,726 - $204,100

35%

$204,101 - $510,300

$408,201 - $612,350

$204,101 - $510,300

$204,101 - $306,175

37%

Over $510,300

Over $612,350

Over $510,300

Over $306,175

 

So, how much of a difference will you see in your tax bill this year? Let’s say you’re married filing jointly and your taxable income didn’t change from 2018 to 2019. If your taxable income is $100,000, you’d shave about $162 off your tax bill, but that’s about it. So, if your income or marital status hasn’t changed, you probably won’t notice much of a difference at all. 

Higher Standard Deductions in 2019

The standard deduction is an automatic reduction in what you owe in taxes. When you pay taxes, you have the option of taking the standard deduction or itemizing your deductions. If you itemize, you calculate your deductions one by one. Itemizing is more of a hassle, but it’s worth it if your itemized deductions exceed the amount of the standard deduction.

The 2018 tax reform law almost doubled the standard deduction, which was great news for many tax filers last year! This year, the standard deduction went up slightly to adjust for inflation.5

Standard Deduction

Filing Status

2018

2019

Single

$12,000

$12,200

Married Filing Jointly

$24,000

$24,400

Married Filing Separately

$12,000

$12,200

Head of Household

$18,000

$18,350


Keep in mind that every situation is different as far as whether you should take the standard deduction or whether you should itemize. Talk to a tax pro to figure out what's best for you.

Penalty for Having No Health Insurance Penalty Gone

Despite all the political wrestling the past few years around the Affordable Care Act, otherwise known as Obamacare, it’s still here. But the penalty you owed if you didn’t get health insurance is now history. That change went into effect for the 2019 tax year, so that means the penalty for not having health insurance (which was $695 in 2018) is going, going, gone.6

While getting rid of penalties is good news, don’t use that as an excuse not to get health insurance. We know. Insurance is expensive. But not having it can cost you way more! 

Higher Threshold for Medical Expenses Deduction

And while we’re talking about health care, the medical expense deduction is another frequently used deduction that is going through a change. For the 2019 tax year, you can deduct unreimbursed medical expenses above 10% of your adjusted gross income (AGI), which is your total income minus other deductions you have already taken.

The 2018 tax reform law did allow taxpayers to deduct medical expenses above 7.5% for the 2017 and 2018 tax years, but that lower hurdle was temporary and expired at the beginning of 2019.7

Changes to the Estate Tax Exemption

The estate tax is a tax you pay on inherited money and property. Simple enough, right? Starting with the 2019 tax year, you can inherit up to $11.4 million in your lifetime before the estate is hit with the 40% tax (the limit was $11.2 million in 2018).8

Everything That’s Staying the Same for the 2020 Tax Season

While some things have been tweaked for the 2020 tax season, a lot of the changes that went into effect last tax season are still just as relevant today as they were back then.

Just as a refresher, here are some other things that changed last year that still might have an impact on how you file your taxes this year:

  • The Child Tax Credit:  The 2018 tax reform law increased the credit to $2,000 per qualified child and raised the income limits for the credit to $400,000 jointly and $200,000 individually.9
  • Using 529 Plans: If you have a 529 college savings plan for your child, you can now use it for education other than college (like private school or tutoring for your child in kindergarten through twelfth grade) tax-free.10 But be careful, because withdrawing too much money too soon can leave Junior with a dried-up college fund.
  • Mortgage Deductions for Homeowners: In 2018, the maximum mortgage principal in the tax reform law was lowered to $750,000. But before you worry, if you had an existing mortgage in between $750,000 and $1 million before 2018, it can be grandfathered into the old deduction.11
  • No More Home Equity Debt Deduction: Borrowing against your home has always been a dumb idea. Now it’s even dumber since you’re no longer allowed to deduct interest paid on home equity debt.12
  • The SALT Deduction: You can still deduct state and local income, sales and property taxes if you decide to itemize your deductions, but only up to $10,000 worth.13
  • Charitable Donations Deduction: You can deduct up to 60% of your income in qualified charitable donations—that’s great news if you like to give like no one else!14

2020 Quarterly Taxes

What if you’re self-employed and pay quarterly taxes (or estimated taxes) throughout the year? Those dates have also been affected by the coronavirus.

The deadline to pay your taxes for the first payment period (January 1 to March 31) has been pushed back to July 15. However, the deadline for second quarter payments (April 1 to May 31) is still June 15. The deadlines for the third and fourth quarter of 2020 also remain unchanged—for now.15

No matter what’s going on with those deadlines, you’ll probably want to go ahead and file your taxes as soon as possible anyway. Not only is waiting till the day before the deadline more stressful than going Christmas shopping on Christmas Eve, but you’ll also miss out on some of the benefits of filing your taxes early.

Here are the updated deadlines for your 2020 estimated taxes:

2020 Quarterly Tax Deadlines

First Payment

July 15, 2020

Second Payment

June 15, 2020

Third Payment

September 15, 2020

Fourth Payment

January 15, 2021

 

Keep in mind that as the situation develops, dates and information might change at a moment’s notice, so keep an eye on the IRS in case they make more changes in response to the coronavirus.

Get Your Taxes Done Right in 2020

Not sure whether or not you want to use a tax pro this year or file your taxes yourself online? Our easy tax quiz can help you figure out which option is best for you.  

Working with a pro is a smart move if you have a complicated tax situation or you own a small business. In those scenarios, a missed deduction on your part could cost you a lot more than the cost of working with a pro. 

And if you’re looking for a trustworthy tax expert in your area, our tax Endorsed Local Providers (ELPs) are here to help. They have years of experience and can help you file your taxes with confidence. And the sooner you connect with a pro, the sooner you can check taxes off your to-do list. 

Find a tax expert today!

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