Page 15 - Supplement to Income Tax 2020

Estimating Your 2020 Taxes

The 15% or 20% rate is increased by the 3.8% tax Child tax credit (pages 504-507). The maximum credit
on net investment income if MAGI exceeds $250,000 amount is set by statute at $2,000 per qualifying child.
if married filing jointly or a qualifying widow/ For 2020, the maximum amount of the credit that is
widower, $200,000 if single or head of household, or refundable is unchanged at $1,400 per qualifying child.
$125,000 if married filing separately. If this threshold The gross income limit for a qualifying relative for the
is exceeded, the 3.8% tax applies to the lesser of the $500 nonrefundable credit for other dependents is
taxpayer’s net investment income, or the MAGI over increased to $4,300 (up from $4,200 in 2019).
the threshold.
Health FSA salary reduction (pages 75-76). The 2020
First-year expensing (pages 727-729). For 2020, limit on salary-reduction contributions to a health
the expensing limit increases to $1,040,000 and the flexible spending arrangement is $2,750.
limit is phased out when qualifying purchases exceed
$2,590,000. Thus, no expensing will be allowed if Educator expenses (page 339). The maximum above-
purchases are $3,630,000 or more. the-line deduction for educator expenses remains at
$250 for 2020.
Qualified business income (QBI) deduction (pages 596,
708-712). For 2020, the taxable income threshold Exclusion for interest on savings bonds used for tuition
above which the QBI deduction may be reduced or (pages 607–609). The exclusion for interest on Series
eliminated is $326,600 if married filing jointly and EE and I bonds redeemed to pay higher education
$163,300 for other filers. expenses will start phasing out for married couples
filing jointly with 2020 MAGI over $123,550, and
Kiddie tax (pages 497–502). For 2020, a child’s the phaseout is complete if MAGI is $153,550 or
investment income over a $2,200 floor (unchanged more. For single taxpayers, heads of households, and
from 2019) is generally taxed at the parent’s top qualifying widows/widowers, the phaseout begins
marginal rate. Changes in the computation of the when MAGI exceeds $82,350 and is complete at
kiddie tax are explained in Last Minute Tax Changes MAGI of $97,350 or more. Married persons filing
(discussed on page 4) separately are not eligible for the exclusion.
AMT exemption amounts and breakpoint between 26% Premiums for long-term-care policies (page 422). The
and 28% rates (pages 489-496). The AMT exemption maximum amount of long-term-care insurance
amounts for 2020 are increased to $113,400 for premiums that can be included in the itemized
married couples filing jointly and surviving spouses, deduction for medical expenses depends on the
$72,900 for singles and heads of households, and policyholder’s age at the end of the year. The 2020
$56,700 for married persons filing separately. The limit is $430 for taxpayers age 40 or younger, $810
26% AMT rate applies to the first $197,900 of 2020 for those over age 40 but not over 50, $1,630 for those
taxable income (AMTI minus exemption), or $98,950 over age 50 but not over 60, $4,350 for those over age
if married filing separately, and the 28% rate applies to 60 but not over 70, and $5,430 for those over age 70.
the excess over $197,900/$98,950.
Per diem payments from long-term-care policies
Adoption credit and employer adoption assistance (page 422). Payments received from a qualified long-
(pages 56, 66, 516–518). The maximum adoption
credit for 2020 is $14,300. The credit will phase term-care insurance contract on a per diem or other
out if MAGI exceeds $214,520, and the phaseout is periodic basis are tax free for 2020 up to $380 per day
complete if MAGI is $254,520 or more. The same without regard to actual expenses incurred.
limit and phaseout rules apply to the employee Foreign earned income and housing exclusions (pages
exclusion for benefits under an employer’s adoption 647–653). The maximum foreign earned income
assistance program. exclusion for 2020 is $107,600.

Supplement to J.K. Lasser’s Your Income Tax 2020 | 11