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FEDERAL INCOME TAX; TRANSFER TAX; AND SOCIAL SECURITY INFORMATION
FOR 2020 RETURNS PREPARED IN 2021 [Including 2021 information where relevant]
Prepared by: Roger A. McEowen
Professor of Agricultural Law and Taxation Washburn University School of Law
roger.mceowen@washburn.edu www.washburnlaw.edu/waltr
2 Contents
LATE FILING PENALTY………. 4
OTHER FILING PENALTIES………... 4
STANDARD DEDUCTION 2020 ... 4
LIMITATION ON CASH METHOD OF ACCOUNTING ... 5
EXCESS BUSINESS LOSS THRESHOLD (I.R.C. §461(l)) ... 5
MILEAGE ALLOWANCE ... 5
2020-2021 MEAL ALLOWANCE WITHOUT RECORDS ... 6
2019 PRODUCTION COSTS FOR SELF USE ... 6
QUALIFIED TRANSPORTATION FRINGE (I.R.C. §132(f)) ... 6
ESTIMATED TAX PAYMENT SAFE HARBOR ... 6
SECTION 179 EXPENSING ... 7
BONUS DEPRECIATION………..7
LUXURY AUTO & LIGHT TRUCK/VAN DEPRECIATION LIMITS ... 7
GASOLINE TAX RATES ... 8
RETIREMENT PLAN CONTRIBUTION LIMITS-2020 ... 8
QUALIFIED LONG-TERM CARE PREMIUM DEDUCTION LIMIT PER PERSON FEDERAL... 8
CAPITAL GAINS TAX RATES... 9
UNEMPLOYMENT TAX (FUTA) ... 10
SOCIAL SECURITY INFORMATION ... 11
SUPPLEMENTAL SOCIAL SECURITY (SSI) MAXIMUM MONTHLY BENEFITS ... 11
COST OF MEDICARE – PART B ... 11
SOCIAL SECURITY TAX & MEDICARE TAX ... 13
EXCLUSION OF SOCIAL SECURITY BENEFITS FROM TAXABLE INCOME ... 13
TAX RATE ON SOCIAL SECURITY BENEFITS ... 13
MAXIMUM EARNINGS ALLOWED SOCIAL SECURITY RECIPIENTS WITHOUT PENALTY ... 14
EARNED INCOME NECESSARY FOR SOCIAL SECURITY CREDIT ... 14
MAXIMUM INCOME & TAX LIMITS ... 15
FICA & SELF-EMPLOYMENT TAXES ... 15
2020 RETIREMENT PLAN TAX CREDIT (Savers Credit) ... 15
HSA LIMITS ... 16
ARCHER MEDICAL SAVINGS ACCOUNTS………...16
EDUCATION CREDITS AND DEDUCTIONS ... 16
CHILD TAX CREDIT ... 17
CHILD CARE CREDIT ... 17
2020 EARNED INCOME CREDIT ... 17
DAY CARE PROVIDERS ... 18
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BEGINNING PHASE OUT OF ITEMIZED DEDUCTIONS ... 18
IOWA INCOME TAX RATES FOR 2020 ... 18
2020 IOWA STANDARD DEDUCTION... 19
2020 IOWA MARGINAL TAX RATES ... 20
2021 IOWA MARGINAL TAX RATES ... 20
IOWA DEPARTMENT OF REVENUE INTEREST RATES ... 20
FEDERAL INCOME TAX RATES FOR 2019 ... 20
FEDERAL INCOME TAX RATES FOR 2020 ... 21
FEDERAL INCOME TAX RATES FOR 2021 ... 21
ADDITIONAL MEDICARE SURTAX ON PASSIVE INCOME ... 22
EXEMPTIONS FROM ALTERNATIVE MINIMUM TAX ... 22
2020 ALTERNATIVE MINIMUM TAX RATES (LESS EXEMPTION) ... 23
2019 FEDERAL TAX RATES FOR ESTATES & TRUSTS ... 23
2020 FEDERAL TAX RATES FOR ESTATES & TRUSTS ... 23
2021 FEDERAL TAX RATES FOR ESTATES & TRUSTS………...24
2020 FEDERAL TAX RATES FOR CORPORATIONS ... 24
2020 IOWA TAX RATES FOR CORPORATIONS ... 24
STANDARD DEDUCTION - FILING REQUIREMENTS, cont'd. ... 24
EXEMPTION FROM KIDDIE TAX ... 25
STANDARD DEDUCTION FOR DEPENDENTS WITH EARNED INCOME OF $1,050 OR LESS ... 26
STANDARD DEDUCTIONS NEEDED FOR NET OPERATING LOSS CARRYBACK ... 26
PERSONAL EXEMPTIONS... 27
2020 MODIFIED ADJUSTED GROSS INCOME THRESHOLD AMOUNTS/PHASEOUT RANGE ... 27
REFUNDABLE CREDIT FOR COVERAGE UNDER A QUALIFIED HEALTH PLAN ... 29
QUALIFIED BUSINESS INCOME... 30
2020 TRANSFER TAX THRESHOLDS ... 30
SPECIAL USE VALUATION – DEATH IN 2020 ... 30
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LATE FILING PENALTY
Legislation enacted on December 22, 2019 increased the amount of the minimum addition to tax under I.R.C. §6651(a) for failure to file a return within 60 days of the due date of the return (determined with regard to any extension of time for filing). For returns for which the due date for which (including extensions) is after 2019, the amount of the addition to tax shall not be less than the lesser of $435 (increased from $330) or 100 percent of the amount required to be shown on the returns. The $435 amount is adjusted for inflation.
OTHER FILING PENALTIES
For the following scenarios, the per return or claim or refund penalty applicable to a return or refund claim filed in 2022 is $50 with the maximum penalty capped at $27,000:
• Failure to furnish copy to taxpayer; • Fairlure to sign return;
• Failure to furnish identifying number; • Failure to file correct information returns
The following scenarios carry a penalty of $545 per occurrence with no maximum limit: • Negotiation of check;
• Failure to be diligent in determining eligibility for HOH filing status; Child Tax Credit; American Opportunity Tax Credit; and EIC
Failure to file a partnership or S corporation return (filing required in 2022): $210 STANDARD DEDUCTION 2020
Married filing joint $24,800 Add’l. deduction if blind &/or 65 or over (each):
Head of Household $18,650 Married; Qualifying Widow(er) $1,300
Single $12,400 Single/HOH $1,650
Married Filing Separately $12,400 Married Filing Separately $1,300 Qualifying Widower $24,800
Note: Starting in 2019, the Standard Deduction became adjusted for inflation. The inflation adjusted amounts for 2021 are as follows:
Add’l. deduction if blind &/or 65 or over (each):
MFJ (and surviving spouses): $25,100 Married; Qualifying Widow(er) $1,350 Head of Household: $18,800 Single/HOH: $1,700 Single (not surviving spouse or HoH): $12,550 Married Filing Separately $1,350
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The Standard Deduction for a dependent taxpayer (an individual who can be claimed as a dependent on another’s return) equals the greater of $1,100 or the sum of $350 plus the dependent’s earned income up to basic standard deduction of $12,200. These numbers do not adjust for 2020 (other than the basic standard deduction amount). The numbers are also projected to remain the same for 2021.
PERSONAL EXEMPTION 2018-2025 $0
FOREIGN EARNED INC EXCLUSION
2020 $107,600
SE HEALTH INS DEDUCTION
BEG. 2003 & AFTER – 100%
Note: While the dependency exemption deduction under I.R.C. §151 is reduced to zero from 2018 through 2025, this reduction isn’t taken into account for other purposes of the Code, such as who is a qualifying relative for family credit purposes, and eligibility for head-of-household status. For 2020, this amount is $4,300, and remains $4,300 for 2021.
LIMITATION ON CASH METHOD OF ACCOUNTING 2019: $25 million
2020: $26 million 2021: $26 million
EXCESS BUSINESS LOSS THRESHOLD (I.R.C. §461(l)) 2019: $255,000 (single and others); $510,000 (MFJ)
2020: $259,000 (single and others); $518,000 (MFJ) 2021: $262,000 (single and others); $524,000 (MFJ)
MILEAGE ALLOWANCE 2020
Business 57.5₵ per mile
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2020-2021 MEAL ALLOWANCE WITHOUT RECORDS
Within Continental US Outside Continental US
Transportation Industry 2020-$66 2020-$71
Non-Transportation Industry 2020-$60 2020-$71
(For specific high cost designated areas, see www.gsa.gov)
Reduce cost of meals by 50% and if employee, subject to 2% AGI floor since taken on Schedule A. For employees subject to D.O.T. hours of service rules, use 80% for 2008 and after. If a taxpayer is traveling away from home for only a portion of the day, the taxpayer may deduct 75% of the M&IE per diem rate or may prorate the deduction according to a consistently applied reasonable business practice.
NOTE: The incidental expenses only rate is $5/day. IRS Notice 2020-71.
2019 PRODUCTION COSTS FOR SELF USE
Beef $99/cwt. Live weight ($755/head) Eggs $.57 per dozen
Pork $34/cwt. Live weight ($87/head) Milk $11.90/cwt. ($1.01/gal) Lamb $65/cwt. Live weight ($81/head) Chicken $1.40 per 4 lb. bird
(Add on for hired labor, high interest, purchased grain)
QUALIFIED TRANSPORTATION FRINGE (I.R.C. §132(f)) (MONTHLY LIMITS)
2019 2020 2021 Vehicle/transit pass $265 $270 $270 Qualified Parking $265 $270 $270
No deduction is allowed for the expense of a qualified fringe paid after 2017; however, the employees can still exclude the benefit from income.
ESTIMATED TAX PAYMENT SAFE HARBOR
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SECTION 179 EXPENSING
Federal Iowa
2019 $1,020,000* $100,000
2020 $1,040,000 $1,040,000 (matches federal for post-2019 tax years) 2021 $1,050,000 $1,050,000
*subject to reduction if more than $2,550,000 (for 2019) ($2,590,000 for 2020) of qualified purchases. Phased-out completely at $3,570,000 (for 2019) ($3,630,000 for 2020). The limit for heavy SUVs for 2020 is $25,900 ($26,200).
BONUS DEPRECIATION
Bonus Depreciation: 100% applies to qualified new and used property placed into service during 2018-2022. No limit on dollar amount. The first-year bonus depreciation percentage is 80% in 2023; 60% in 2024; 40% in 2025 and 20% in 2026. Bonus depreciation is also allowable for specified plants planted or grafted after Sept. 27, 2017, and before Jan. 1, 2027.
Note: On Sept. 13, 2020, the IRS issued final regulations (T.D. 9874) and proposed regulations (REG-106808-19) governing the bonus depreciation. The final regulations finalize proposed regulations issued in August 2018 (REG-104397-18) with some changes.
Both the final and proposed regulations were published in the Federal Register on Sept. 24.
LUXURY AUTO & LIGHT TRUCK/VAN DEPRECIATION LIMITS ACQUIRED POST-9/27/17 AND PLACED IN SERVICE IN 2020
Bonus No Bonus
Year 1 $18,100 $10,100
Year 2 $16,100 $16,100
Year 3 $ 9,700 $ 9,700
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GASOLINE TAX RATES
GASOLINE ETHANOL BLENDED
GASOLINE & E85
IOWA 7/1/18 – 6/30/19 $.305 $.290
IOWA 7/1/19 – current $.305 $.290
FEDERAL $.184 $.184
RETIREMENT PLAN CONTRIBUTION LIMITS-2020 MAX DEDUCTIBLE 401(K) CONTRIBUTION
$19,500/$25,500*
MAX DEDUCTIBLE SIMPLE PLAN MAX IRA/ROTH CONTRIBUTION
$13,500/ $16,500* $6,500 / $7,500*
* Includes age 50 catch-up contribution
The maximum possible contribution for defined contributions plans (e.g., for a self-employed person with sufficiently high income contributing to a solo 401(k) is $57,000.
QUALIFIED LONG-TERM CARE PREMIUM DEDUCTION LIMIT PER PERSON FEDERAL
AGE 2020 2021 0 -40 $430 $450 Over 40 – 50 $810 $850 Over 50 – 60 $1,630 $1,690 Over 60 – 70 $4,220 $4,520 Over 70 $5,270 $5,640
Benefits from per diem or indemnity policies, which pay a predetermined amount daily, are not included in income except amount that exceed the beneficiary’s total qualified long-term care expenses or $370/day, whichever is greater.
Notes:
1. Iowa has no limitation on deductible amount.
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CAPITAL GAINS TAX RATES
Taxpayer’s Ending Rate
DATE OF SALE HOLDING
PERIOD 15%/12 % 25% and over pre-2013 39.6% and over 2013 - 2017
Prior to 5/7/97 12 months 15% 28% N/A
After 5/6/97 & prior to 7/29/87 12 months 10% 20% N/A After 7/28/97 & prior to 1/1/98 12 months 15% 28% N/A After 7/28/97 & prior to 1/1/98 18 months 10% 20% N/A After 12/31/97 & prior to 5/6/03 12 months 10% 20% N/A After 5/5/03 & prior to 1/1/08* 12 months 5% 15% N/A After 12/31/07 & prior to 1/1/13* 12 months 0% 15% N/A
After 12/31/12* 12 months 0% 15% 20%
* Including qualifying dividends.
For tax years 2001, 2002 and through May 5, 2003 8%/18% capital gain rates may be available if five year holding period is met. For sales after May 5, 2003, the rule is abolished.
Gains on Sales of Collectibles are taxed at 28%.
IRC §1250 gains attributable to depreciation are taxed at a maximum rate of 25%. Capital Gain Bracket Rates (2020; 2021 is in parens):
1. The capital gain tax rate is 0% for…
a. MFJ taxpayers (and surviving spouse) with taxable income less than $80,000 ($80,800);
b. HoH taxpayers with taxable income less than $53,600 ($54,100);
c. Single or MFS taxpayer with taxable income less than $40,000 ($40,400); d. Estates and trusts with taxable income less than $2,650 ($2,700)
2. The capital gain tax rate is 15% for…
a. MFJ taxpayers (and surviving spouses) with taxable income of $80,000 – less than $496,600 ($80,800 - $501,600);
b. HoH taxpayers with taxable income of $53,600 – less than $469,050; ($54,100 - $473,750)
c. Single taxpayers with taxable income of $40,000 – less than $441,450; ($40,400 - $445,850)
d. MFS taxpayers with taxable income of $40,000 – less than $248,300); ($40,400 - $250,800)
e. Estates and trusts with taxable income of $2,650 - $13,150; ($2,700 - $13,250) 3. The 20% capital gains tax rate applies to adjusted net capital gain over the above
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4. If the capital gain is “passive” in nature an additional 3.8% net investment income tax may apply.
UNEMPLOYMENT TAX (FUTA)
Non-Agricultural Employees – If one paid wages of $1,500 or more in any calendar quarter or had 1 or more employees working at least 20 weeks during the year, even if they’re parti-time or temporary employees and worked part of a day. Exceptions to FUTA apply to 501(c)(3) organizations and for wages paid to children under 21 employed by their parent(s).
Agricultural Employees – If cash wages of $20,000 or more paid in any calendar quarter OR had 10 or more ag employees during some portion of a day (need not be at same time) at least 1 day during any 20 different weeks. To determine whether either test is met, count wages paid to aliens admitted on a temporary basis to the United States to perform farmwork (also known as "H-2A" visa workers). However, wages paid to "H-2A" visa workers aren't subject to the FUTA tax.
If you hire a crew leader to provide farmworkers, they will be your employees for FUTA purposes unless:
• the crew leader is registered under the Migrant and Seasonal Agricultural Worker Protection Act, or
• substantially all of the workers supplied by the crew leader operate or maintain tractors, harvesting or crop-dusting machines, or other machines provided by the crew leader. Domestic Employees – Wages of $1,000 or more per quarter
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SOCIAL SECURITY INFORMATION
Social Security and Supplemental Security Income (SSI) beneficiaries will receive a 1.3% COLA effective January 2021.
Tax Rate
Employee – 7.65% Self-Employed – 15.3%
Note: The 7.65% rate is the combined rate for Social Security and Medicare. The OASDI portion is 6.20% on earnings up to $137,700 (2020) or $142,800 (2020). The Medicare portion (HI) is 1.45% on all earnings. Also, persons with earned income over $200,000 ($250,000 for MFJ) pay an additional 0.9% in Medicare taxes.
Quarter of Coverage: $1,410 ($1,470 for 2021). A worker may earn a maximum of four credits per year. Doing so in 2020 requires $5,640 in earnings.
SUPPLEMENTAL SOCIAL SECURITY (SSI) MAXIMUM MONTHLY BENEFITS
Single Couple 2015 $733 $1,100 2016 $733 $1,100 2017 $735 $1,103 2018 $750 $1,125 2019 $771 $1,157 2020 $783 $1,175 2021 $794 $1,191
Note: 1) The monthly amount for an essential person is $397 for 2021.
2) The monthly amount is reduced by subtracting monthly countable income. In addition, for an eligible individual with an eligible spouse, the amount
payable is further divided equally between the two spouses. 3) Some states supplement SSI benefits.
COST OF MEDICARE – PART B 2019* New Enrollees 2020* New Enrollees Month $135.50 $144.60 Year $1,626.00 $1,735.20
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2018 MONTHLY PREMIUMS - (NEW ENROLLEES) PART
B
PART D If Your Yearly Income in 2016 was You
pay
You pay File Individual Tax Return File Joint Tax Return
$85,000 or less $170,000 or less $134.00 **
above $85,000 to $107,000 above $170,000 to $214,000 $187.50 $13.00 ** above $107,000 to $133,500 above $214,000 to $267,000 $267.90 $33.60 ** above $133,500 to $160,000 above $267,000 to $320,000 $348.30 $54.20 **
above $160,000 above $320,000 $428.60 $74.80 **
**Plus, monthly premium established by private insurers.
2019 MONTHLY PREMIUMS - (NEW ENROLLEES) PART
B
PART D If Your Yearly Income in 2017 was You
pay
You pay File Individual Tax Return File Joint Tax Return
$85,000 or less $170,000 or less $135.50 ** above $85,000 to $107,000 above $170,000 to $214,000 $189.60 $12.40 ** above $107,000 to $133,500 above $214,000 to $267,000 $270.90 $31.90 ** above $133,500 to $160,000 above $267,000 to $320,000 $352.20 $51.40 ** above $160,000 to $500,000 above $320,000 to $750,000 $433.40 $70.90 ** above $500,000 Above $750,000 $460.50 $77.40 **
**Plus, monthly premium established by private insurers.
2020 MONTHLY PREMIUMS - (NEW ENROLLEES) PART
B
PART D If Your Yearly Income in 2018 was You
pay
You pay File Individual Tax Return File Joint Tax Return
$87,000 or less $174,000 or less $144.60 ** above $87,000 to $109,000 above $174,000 to $218,000 $202.40 $12.20 ** above $109,000 to $136,000 above $218,000 to $272,000 $289.20 $31.50 ** above $136,000 to $163,000 above $272,000 to $326,000 $376.00 $50.70 ** above $163,000 to $500,000 above $326,000 to $750,000 $462.70 $70.00 ** above $500,000 Above $750,000 $491.60 $76.40 **
**Plus, monthly premium established by private insurers.
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SOCIAL SECURITY TAX & MEDICARE TAX
2020 Employee 2020 Self-Employed
.062 .1240
.0145* .0290*
.0765 .1530
*Employers are responsible for withholding the 0.9% Additional Medicare Tax on an individual’s wages paid in excess of $200,000 in a calendar year, without regard to filing status. An employer is required to begin withholding Additional Medicare Tax in the pay period in which it pays wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. There is no employer match for Additional Medicare Tax.
EXCLUSION OF SOCIAL SECURITY BENEFITS FROM TAXABLE INCOME
Joint Return $32,000
Single Return (or qualifying widower with dependent child) $25,000 Married, Living together Filing Separately $ - 0 –
Note: The taxability of Social Security Benefits is determined by taking one half of the taxpayer’s Social Security benefits for the year and add to that amount all of the taxpayer’s other income, including tax-exempt interest. The total amount, known as “combined income.”
TAX RATE ON SOCIAL SECURITY BENEFITS
Taxpayers receiving Social Security benefits may have to pay federal income tax on a portion of those benefits. Social Security benefits include monthly retirement, survivor and disability benefits. They don't include supplemental security income payments, which aren't taxable. The portion of benefits that are taxable depends on the taxpayer's income and filing status. To find out if benefits are taxable:
• Take one half of the Social Security money collected during the year and add it to other income (pensions, wages, interest, dividends and capital gains).
• For a single filer, if the total comes to more than $25,000, then part of the Social Security benefits may be taxable.
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Fifty percent of a taxpayer's benefits may be taxable if they are:
• Filing single, single, head of household or qualifying widow or widower with $25,000 to $34,000 income.
• Married filing separately and lived apart from their spouse for all of 2020 with $25,000 to $34,000 income.
• Married filing jointly with $32,000 to $44,000 income. Up to 85% of a taxpayer's benefits may be taxable if they are:
• Filing single, head of household or qualifying widow or widower with more than $34,000 income.
• Married filing jointly with more than $44,000 income.
• Married filing separately and lived apart from their spouse for all of 2020 with more than $34,000 income.
• Married filing separately and lived with their spouse at any time during 2020.
MAXIMUM EARNINGS ALLOWED SOCIAL SECURITY RECIPIENTS WITHOUT PENALTY
Year Age 62 to 65* Age 66
2015 $15,720 unlimited** 2016 $15,720 unlimited** 2017 $16,920 unlimited** 2018 $17,040 unlimited** 2019 $17,640 unlimited** 2020 $18,240 unlimited**
* Excess earnings result in loss of $1 for each $2 earned above ceiling if age 62 – full retirement age.
** No limitation on earnings in and after the month in which a person attains full retirement age. If
born between 1943 and 1954, full retirement age is 66 years.
Limitation for part of calendar year (during which the taxpayer reaches full retirement age) up to the date of full retirement; $48,600 ($4,050/mo.) for 2020. Excess earnings result in loss of $1 for each $3 earned above ceiling.
EARNED INCOME NECESSARY FOR SOCIAL SECURITY CREDIT
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2019 $1,360 per quarter or $5,440 per year 2020 $1,410 per quarter or $5,644 per year
MAXIMUM INCOME & TAX LIMITS Maximum Taxable Income
Year Social Security Medicare
2015 $118,500 No limit 2016 $118,500 No limit 2017 $127,200 No limit 2018 $128,400 No limit 2019 $132,900 No limit 2020 $137,700 No limit 2021 $142,800 No limit ______________________________________________________________________________
FICA & SELF-EMPLOYMENT TAXES Maximum Employee Maximum
Year Wages _ Withholding Withholding Self-Employment
2015 $118,500 7.65%^^ $ 9,065.25 15.30%*^^ 2016 $118,500 7.65%^^ $ 9,065.25 15.30%*^^ 2017 $127,200 7.65% ^^ $ 9,730.80 15.30%*^^ 2018 $128,400 7.65% ^^ $ 9,822.60 15.30%*^^ 2019 $132,900 7.65% ^^ $10,166.85 15.30%*^^ 2020 $137,700 7.65%^^ $10,549.35 15.30%*^^ 2021 $142,800 7.65%^^ $10,924.20 15.30%*^^
*1/2 may be claimed as a deduction.
^^ Medicare portion of FICA tax increases by .009 for wages and .009 for self-employed earnings over $200,000 regardless of filing status.
2020 RETIREMENT PLAN TAX CREDIT (Savers Credit) (Modified AGI)
Joint Head of Household Single & MFS Credit Rate
0 - $39,000 0 - $29,250 0 - $19,500 50%
$39,001 – $42,500 $29,251 - $31,875 $19,501 - $21,250 20%
$42,501 - $65,000 $31,876 - $48,750 $21,251 - $32,500 10%
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HEALTH SAVINGS ACCOUNT LIMITS
2018 2019 2020 2021
MAXIMUM CONTRIBUTION
Individual $3,450 $3,500 $3,550 $3,600
Family $6,900 $7,000 $7,100 $7,200
Additional catch up amount (age 55) $1,000 $1,000 $1,000 $1,000
MAXIMUM OUT OF POCKET EXPENSE Individual $6,650 $6,750 $6,900 $7,000 Family $13,300 $13,500 $13,800 $14,000 MINIMUM DEDUCTIBLE AMOUNT Individual $1,350 $1,350 $1,400 $1,400 Family $2,700 $2,700 $2,800 $2,800
ARCHER MEDICAL SAVINGS ACCOUNT LIMITS
For taxable years beginning in 2021, a high deductible health plan means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,400 and not more than $3,600, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,800. For family coverage, a high deductible health plan is defined as a health plan with an annual deductible of not less than $4,800 and not more than $7,150, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $8,750.
EDUCATION CREDITS AND DEDUCTIONS
American Opportunity Tax Credit - 100% of first $2,000 and 25% of next $2,000 of eligible tuition, related expenses and course materials (e.g. books, etc.); maximum $2,500 credit per student for each of first four years of post-secondary education. Measured by academic level on January 1st of each year. 40% of the credit or a maximum of $1,000 is refundable unless student is subject to Kiddie tax. The PATH Act of 2015 made the AOTC permanent. For single taxpayers, the AOTC is phased-out at MAGI between $80,000 and $90,000 for single filers ($160,000 to $180,000 for MFJ filers).
Lifetime Learning Credit - 20% of eligible tuition and related expenses up to a maximum of $10,000 of such expenses. Full credit: MAGI Sgl. $58,000 or less; MFJ $116,000 or less. Reduced credit: MAGI Sgl. $58,000-$68,000; MFJ $116,000-$136,000. May claim for an unlimited number of years.
Must elect between American Opportunity Credit OR Lifetime Learning Credit.
Qualified Education Loan Interest Deduction – MAGI to qualify phased out: $70,000-$85,000 Single; $140,000-$170,000 MFJ. Up to $2,500 deduction allowed per return.
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CHILD TAX CREDIT
$2,000 per qualifying child under age 17 as of December 31st, $1,400 of which is refundable, subject to phase out limits based on AGI (MFJ > $400,000; S/HOH > $200,000).
New 2018-2025: Credit is modified to provide for an additional $500.00 non-refundable credit for qualifying dependents other than qualifying children.
* Qualifying child’s social security number is required to claim the child tax credit. If the qualified child is not allowed the child tax credit due to not having a social security number, that child is treated as a dependent to whom partial credit applies.
CHILD CARE CREDIT
Expenses must be incurred to be gainfully employed – the credit is limited to taxpayer that have earned income (wages, salaries, tips and self-employment earnings). For a more in-depth discussion of what does and does not count as earned income, see IRS Pub. 503.
The limit is $3,000 of expenses for one child, $6,000 for two or more. Cannot exceed earned income of a single person or earned income of spouse with least amount of earned income. (NOTE: spousal earned income exception for handicapped or full-time student spouse.) Qualifying child must be under 13 or mentally or physically incapable. Must furnish over half of expense of maintaining home for dependent. Use Form 2441. List name, address and social security number of each provider.
Many different types of care arrangements qualify for the credit such as care provided in the home or in the home of the caregiver; care provided at a childcare center; nursery or day camp. Tuition expenses as a K-12 school aren’t eligible for the credit, but the cost of before and after-school care is allowable.
The care provided cannot be the taxpayer’s spouse, parent of the child, another one of the taxpayer’s children under the age of 19, or another dependent whom the taxpayer or the taxpayer’s spouse may claim on the tax return.
The credit amount ranges from 20% to 35% of allowable care expenses depending on AGI. The percentages are found on Line 8 of Form 2441.
2020 EARNED INCOME CREDIT
Need not be married or have dependents. Phase out, income and credit limits are: SINGLE OR HEAD OF HOUSEHOLD
# Qualifying Children Phase Out
Income Limits Maximum EIC Income Range Maximum EIC
0 $15,820 $538
1 $41,756 $3,584
2 $47,440 $5,920
3 or more $50,954 $6,660
MARRIED FILING JOINTLY # Qualifying Children Phase Out
Income Limits Maximum EIC Income Range Maximum EIC
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1 $47,646 $3,584
2 $53,330 $5,920
3 or more $56,844 $6,660
EIC Tables – See Pub. 596. Investment income must be $3,650 or less. If more than $3,650 – no credit. There is also not credit available for taxpayers that file MFS.
DAY CARE PROVIDERS
Standard Meal/Snack Rates: 2019* 2020**
Breakfast $1.31 $1.33
Lunch/Dinner $2.46 $2.49
Snack $0.73 $ .74
Add: Non-food items (containers, paper products, utensils, etc.)
*Effective July 1, 2019 – June 30, 2020; **Effective July 1, 2020 – June 30, 2021
BEGINNING/ENDING PHASE OUT OF PERSONAL EXEMPTION Suspended from 2018 through 2025
BEGINNING PHASE OUT OF ITEMIZED DEDUCTIONS Suspended from 2018 through 2025
IOWA INCOME TAX RATES FOR 2020 Single and Married Filing Jointly Tax Brackets
Tax Bracket Tax Rate
$0.00+ 0.33%
$1,666.00+ 0.67%
19 Tax Bracket Tax Rate
$6,664.00+ 4.14% $14,994.00+ 5.63% $24,990.00+ 5.96% $33,320.00+ 6.25% $49,980.00+ 7.44% $74,970.00+ 8.53%
EXEMPTION CREDIT:Taxpayer $40 Volunteer Firefighter/EMS/Reserve Peace Officer: Dependent $40 2020 Credit = $100 if serving full year;
part-year volunteers must prorate; 2023 and forward suspended
Blind/Over 65 $20
EXCLUSIONS: $6,000 per taxpayer of pension/retirement benefits excluded – joint $12,000 (does not include social security). Military pension exclusion: total exclusion from Iowa taxation for 2014 and after. This is in addition to above pension/retirement amounts.
2020 IOWA STANDARD DEDUCTION (After deducting federal income tax)
2020 Married filing separately (amount for each spouse) $2,110
Single $2,110
Joint, surviving spouse or unmarried head of household $5,210 Note: Standard deduction cannot create a negative figure.
Deduct all health and long-term care insurance premiums as a Page One (line 18) deduction to arrive at Iowa net income, including health insurance premiums of 25 and 26-year-old non-qualified dependents
Note: Iowa did couple with this provision for 2012 and after.
College Savings Plan (§529) – 2020 deductible amount for Iowa purposes is $3,439 per beneficiary; per donor (spouses are treated separately for this purpose).
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2020 IOWA MARGINAL TAX RATES INDIVIDUALS & ESTATES/TRUSTS
But Not
Over Over The tax is
$ 0 $ 1,666 $ 0.00 + 0.33% $ 1,666 $ 3,332 $ 5.50+ 0.67% $ 3,332 $ 6,664 $ 16.66 + 2.25% $ 6,664 $14,994 $ 91.63 + 4.14% $14,994 $24,990 $ 436.49. + 5.63% $24,990 $33,320 $ 999.26 + 5.96% $33,320 $49,980 $1,495.73 + 6.25% $49,980 $74,970 $2,536.98 + 7.44% $74,970 OVER $4,396.24 + 8.53%
2021 IOWA MARGINAL TAX RATES INDIVIDUALS & ESTATES/TRUSTS
But Not
Over Over The tax is
$ 0 $ 1,676 $ 0.00 + 0.33% $ 1,676 $ 3,352 $ 5.53+ 0.67% $ 3,352 $ 6,704 $ 16.76 + 2.25% $ 6,704 $15,084 $ 92.18 + 4.14% $15,084 $25,140 $ 439.11 + 5.63% $25,140 $33,520 $ 1,005.26 + 5.96% $33,520 $50,280 $ 1,504.71 + 6.25% $50,280 $75,420 $ 2,552.21 + 7.44% $75,420 OVER $ 4,422.63 + 8.53%
IOWA DEPARTMENT OF REVENUE INTEREST RATES 2007-2008 8/10ths of 1% per month (10% per annum) 2009 7/10ths of 1% per month (8% per annum) 2010-2017 4/10ths of 1% per month (5% per annum) 2018 5/10ths of 1% per month (6% per annum) 2019-2020 6/10ths of 1% per month (7% per annum)
Note: Starting January 1, 2021, the interest rate for taxpayers with overdue payments will be 6.0% annually (0.5% monthly; 0.016438% daily)
FEDERAL INCOME TAX RATES FOR 2019
Taxable Income Brackets for Individuals – 2019
Tax Rate
Married Filing Joint Return & Surviving
Heads of
21 Spouses 10% 0 - $19,400 0 - $13,850 0 - $9,700 12% $19,401 - $78,950 $13,851 – $52,850 $9,700 - $39,475 22% $78,951 - $168,400 $52,851 - $84,200 $39,476 – $84,200 24% $165,401 - $321,450 $84,201 – $160,700 $84,201 – $160,725 32% $321,451 - $408,200 $160,701 – $204,100 $160,726 – $204,100 35% $400,201 - $612,350 $204,101 - $510,300 $204,101 - $510,300 37% Over $612,350 Over $510,300 Over $510,300
FEDERAL INCOME TAX RATES FOR 2020
Taxable Income Brackets for Individuals – 2020
Tax Rate
Married Filing Joint Return & Surviving Spouses
Heads of
Household Married Filing Separately 10% 0 - $19,750 0 - $14,100 0 - $9,875 12% $19,751 - $80,250 $14,101 – $53,700 $9,876 - $40,125 22% $80,251 - $171,050 $53,701 - $85,500 $40,126– $85,525 24% $171,051 - $326,600 $85,501 – $163,300 $85,526 – $163,300 32% $326,601 - $414,700 $163,301 – $207,350 $163,301– $207,350 35% $414,701 - $622,050 $207,351 - $518,400 $207,315 - $311,025 37% Over $622,050 Over $518,400 Over $311,025
FEDERAL INCOME TAX RATES FOR 2021
Taxable Income Brackets for Individuals – 2021 (Projected)
Tax Rate
Married Filing Joint Return &
Heads of
22 Surviving Spouses Separately 10% 0 - $19,900 0 - $14,200 0 - $9,950 12% $19,901 - $81,050 $14,201 – $54,200 $9,951 - $40,525 22% $81,051 - $172,750 $54,201 - $86,350 $40,526– $86,375 24% $172,751 - $329,850 $86,351 – $164,900 $86,376 – $164,925 32% $329,851 - $418,850 $164,901 – $209,400 $164,926– $209,425 35% $418.851 - $628,300 $209,401 - $523,600 $209,426 - $314,150 37% Over $628,300 Over $523,600 Over $314,150
ADDITIONAL MEDICARE SURTAX ON PASSIVE INCOME
A 3.8% “Medicare surtax” became effective Jan. 1, 2013 and after on net investment income (NII). The 3.8% tax is on the lesser of net investment income (NII) or the taxpayer’s AGI in excess of $250,000 MFJ/Qualified Widow(er)/$125,000 MFS; $200,000 Single or HOH.
EXEMPTIONS FROM ALTERNATIVE MINIMUM TAX
Filing Status 2020 Exemption Exemption Phase-out Range Joint/Qualifying Widow(er) $113,400 $1,036,800 Single/Head of Household $72,900 $ 518,400 Married Filing Separately $56,700 $ 518,400
Estates & Trusts $25,400 $ 84,800
Child subject to Kiddie Tax
$ 7,900 ($7,950 in 2021) (plus child’s earned
income)
Note: For 2021, the exemption from AMT will be as follows: MFJ (and surviving spouse): $114,600
Single (not surviving spouse): $73,600
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Estates and Trusts: $25,700
Note: For 2021, the beginning of the phase-out range (I.R.C. §55(d)(2)) will be as follows: MFJ (and surviving spouse): $1,047,200
Single (not surviving spouse): $523,600
MFS: $523,600
Estates and Trusts: $85,650
2020 ALTERNATIVE MINIMUM TAX RATES (LESS EXEMPTION) Up to $197,900 26% ($98,950 if MFS/S)
Over $197,900 28% ($98,950 if MFS/S)
Note: AMT exemptions phase out at 25 cents per dollar earned once the taxpayer’s AMTI hits a certain threshold. In 2020, the exemption will start phasing out at $518,400 in AMTI for single filers and $1,036,800 for married taxpayers filing jointly.
2019 FEDERAL TAX RATES FOR ESTATES & TRUSTS If FEDERAL Taxable Income is:
Over But Not Over The tax is
$ 0 $ 2,600 10%
2,600 9,300 $ 255.00 + 24% 9,300 12,750 1,839.00 + 35%
12,750 3,011.50 + 37%
2020 FEDERAL TAX RATES FOR ESTATES & TRUSTS If FEDERAL Taxable Income is:
Over But Not Over The tax is
$ 0 $ 2,600 10%
2,600 9,450 $ 260.00 + 24% 9,450 12,950 1,904.00 + 35%
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2021 FEDERAL TAX RATES FOR ESTATES & TRUSTS If FEDERAL Taxable Income is:
Over But Not Over The tax is
$ 0 $ 2,650 10%
2,650 9,550 $ 265.00 + 24% 9,550 13,050 1,921.00 + 35%
13,050 3,146.00 + 37%
NOTE: Iowa estates/trusts rates are the same as Iowa individual rates.
2020 FEDERAL TAX RATES FOR CORPORATIONS Flat rate of 21%
2020 IOWA TAX RATES FOR CORPORATIONS
Taxable Income Tax Rate
Under $25,000 6% of taxable income
$25,000 to $100,000 8% of taxable income and subtract $500 $100,000 to $250,000 10% of taxable income and subtract $2,500 Over $250,000 12% of taxable income and subtract $7,500
Note: Iowa has the highest maximum marginal corporate tax bracket in the United States.
STANDARD DEDUCTION - FILING REQUIREMENTS, cont'd.
YOU MUST FILE IF:
• Your net self-employment earnings are $400 or more.
• You are entitled to a refund of tax withheld from your wages or a refund based on the earned income credit for low income households.
25
EXEMPTION FROM KIDDIE TAX
Note: The “Kiddie-Tax is the result of an effort to close a tax loophole for the “wealthy.” The idea is to tax a child’s passive income at the same rate as that of their parents to eliminate income shifting from the parents to the child.
For 2020, Kiddie Tax applies to a child under 18 years of age and to children age 18 (who are not full-time students) and to full-time students age 18-23 unless the child’s earned income exceeds 50% of annual support.
Note: In other words, the Kiddie Tax rules apply to children who are “dependents.” Those who are no dependents because of their age of filing status (such as children who are married), level of support or those who are emancipated have a different set of rules (such, as stated above, children with earned income totaling more than one-half of the cost of their support).
The child must pay tax on their unearned income once it exceeds $2,200. However, if the child’s unearned income exceeds $1,100 but is less than $11,000, the parent(s) may be able to elect to include that income on the parent’s return instead of filing a separate return for the child. These numbers stay the same for 2021.
CAUTION – SECURE Act change:
Under the TCJA, the rate of the Kiddie tax is tied to the rates paid by trusts and estates. However, the SECURE Act repeals the TCJA change in the Kiddie tax and is effective for 2020 and beyond. There is also the option to apply the rules to 2019 returns and amend 2018. Thus, the fix is retroactive for 2019 and 2018 returns.
For most taxpayers, the Kiddie tax is based on the child’s taxable income. A child’s taxable income is computed by taking the child’s net earned income and adding to it the child’s net unearned income and then subtracting the child’s standard deduction.
The new Kiddie tax formula under the Secure Act is as follows: Child’s net earned income + Child’s net unearned income – child’s standard deduction = child’s taxable income. Thus, if Billie (a dependent child) had no earned income and unearned income (dividends and interest, for example) of $5,000, and Billie’s parents had $170,000 of taxable income, the calculation would be:
$0 + $5,000 - $1,100 = $3,900 (taxable income).
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STANDARD DEDUCTION FOR DEPENDENTS WITH EARNED INCOME OF $1,050 OR LESS If your filing status is Single: Your Standard Deduction is:
Under 65, not blind Greater of $1,100 or sum of $350 and taxpayer’s earned income (not to exceed regular standard deduction amount)
65 or older or blind $3,000
65 or older and blind ($1,050+ $1,600 + $1,600) $4,250
If your filing status is Married Filing Separately: Your Standard Deduction is: (AND YOUR SPOUSE DOES NOT ITEMIZE)
Under 65, not blind $1,050
65 or older or blind ($1,050 +$1,300) $2,350 65 or older AND blind ($1,050+ $1,300 + $1,300) $3,650
COMPUTATION OF STANDARD DEDUCTION FOR DEPENDENTS UNDER 65, NOT BLIND, EARNED INCOME EXCEEDING $1,050.
1. Enter earned income but not less than $1,050 $__________ 2. Enter $12,000 if Single OR $12,000 if Married Filing
Separately & spouse doesn't itemize OR $18,000 if HOH
OR $24,000 if Qualifying Widow(er). $__________ 3. Enter smaller of Line 1 or 2. This is your
standard deduction $________
STANDARD DEDUCTIONS NEEDED FOR NET OPERATING LOSS CARRYBACK Married Joint HOH Single Filing Separately
27
< ADD: $1,050 if married filing joint or separately & over 65 $1,350 if single or HOH or over 65
> ADD: $1,100 if married filing joint or separately & over 65 $1,400 if single or HOH or over 65
~ ADD: $1,150 if married filing joint or separately & over 65 $1,450 if single or HOH or over 65
# ADD: $1,200 if married filing joint or separately & over 65 $1,500 if single or HOH or over 65
^ ADD: $1,200 if married filing joint or separately & over 65 $1,550 if single or HOH or over 65
& ADD: $1,250 if married filing joint or separately & over 65 $1,550 if single or HOH or over 65
= ADD: $1,300 if married filing joint or separately & over 65 $1600 if single or HOH or over 65
- ADD: $1,300 if married filing joint or separately & over 65 $1,650 if single or HOH or over 65
PERSONAL EXEMPTIONS 2003 $3,050 2009 $3,650 2015 $4,000 2004 $3,100 2010 $3,650 2016 $4,050 2005 $3,200 2011 $3,700 2017 $4,050 2006 $3,300 2012 $3,800 2018 $0 2007 $3,400 2013 $3,900 2019 $0 2008 $3,500 2014 $3,950 2020 $0
2020 MODIFIED ADJUSTED GROSS INCOME THRESHOLD AMOUNTS/PHASEOUT RANGE FOR SINGLE AND HEAD OF HOUSEHOLD FILERS
DESCRIPTION
SINGLE & HEAD OF HOUSEHOLD (OR QUALIFYING
WIDOW(ER))
28 Elderly/disabled credit $ 7,500 - $17,500 Dependent care credit
(20% min. credit)
$15,000 - $43,000 35% reduced 1% for each
$2,000 over AGI credit range
Social Security Benefits taxation $25,000 - $34,000 = 50% $34,000 – above = 85%
Lifetime Learning Credit $59,000 - $68,000 $2,000
IRA deduction (if pension coverage)
$65,000 - $75,000 $6,000 max contrib.
$1000 catch-up age 50 and over
Tuition Deduction Not available in 2020 unless extended.
Education loan interest expense $70,000 - $85,000 $2,500 U.S. Savings Bond Interest
exclusion
$81,100 - $96,100 To extent of qualified Education expense
American Opportunity Credit $80,000 - $90,000 $2,500
Coverdell Education Savings Account (CESA) (Education IRA)
$95,000 - $110,000 $2,000
Mortgage Insurance Premium Deduction
$100,000 - $109,000 must allocate the premiums over the shorter of the stated term of the mortgage or 84 months
Passive rental loss ($25,000) exception
$100,000 - $150,000
Rollover to Roth IRA No limitation after 12/31/09
Roth IRA $124,000 - $139,000 $6,000 max contrib. $1000
catch-up age 50 and over Child Tax Credit:
(1 child)
$200,000 - $240,000 $ 2,000*
(2 children) $200,000 - $240,000 $ 4,000*
(3 children) $200,000 - $240,000 $ 6,000*
Adoption credit/exclusion $214,520 - $254,520 $14,300 ($14,440 for 2021) Itemized Deductions Phase-out NONE – Repealed
* Under 17 as of December 31, 2020.
FOR MARRIED FILING JOINT AND MARRIED FILING SEPARATE FILERS
DESCRIPTION MARRIED FILING JOINT
MARRIED FILING SEPARATELY Elderly/disabled Credit $10,000 - $25,000 (both
spouses qualify)
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Social security benefits taxation $32,000 - 44,000 = 50% $44,000 – above = 85%
No threshold exemption unless lived apart from spouse entire tax yr.
Rollover to Roth IRA No limitation after 12/31/09 Not allowed Mortgage Insurance Premium
Deduction
$100,000 - $109,000 $50,000 - $54,500 Tuition Deduction Not available in 2020 unless
extended. Passive rental loss ($25,000)
exception
$100,000 - $150,000 $50,000 - $75,000 (See spec. rules)
IRA deduction (active
participant pension coverage)
$104,000 - $124,000 $0 - $10,000 Lifetime Learning Credit $118,000 - $136,000 No Credit U.S. savings bond interest
exclusion
(qualified educ. exp.)
$121,600- $151,600 No exclusion
Education loan interest expense
$140,000 - $170,000 No deduction American Opportunity Credit $160,000 - $180,000 No Credit IRA deduction if other spouse
has pension coverage-(not active participant threshold)
$196,000 - $206,000 $0 - $10,000
(if lived apart from spouse entire tax year treated as single)
Roth IRA $196,000 - $206,000 $0 - $10,000
Coverdell Education Savings Account (CESA) (Education IRA)
$190,000 - $220,000 $95,000 - $110,000
Adoption credit/exclusion $214,520 - $254,520 No credit/exclusion Child tax credit:
(1 child) $2,000* $400,000 - $440,000 $200,000 - $240,000 (2 children) $4,000* $400,000 - $440,000 $200,000 - $240,000 (3 children) $6,000* $400,000 - $440,000 $200,000 - $240,000 Itemized Deductions Phase-out NONE – Repealed
* Under 17 as of December 31, 2020.
REFUNDABLE CREDIT FOR COVERAGE UNDER A QUALIFIED HEALTH PLAN
For tax years beginning in 2020, the limitation on tax imposed under I.R.C. §36B(f)(2)(B) for excess advance credit payments is determined as follows:
Single All Others
30
QUALIFIED BUSINESS INCOME
For tax years beginning in 2020 (2021 is in parens), the threshold amount under I.R.C. §199A(e)(2) is as follows:
MFJ: $326,600 ($329,800) MFS: $163,300 ($164,925) All others: $163,300 ($164,900)
2020 TRANSFER TAX THRESHOLDS Gift tax annual exclusion $15,000; ($15,000 for 2021) Annual Exclusion: Non-U.S. Spouse $157,000
Estate and Gift Tax Unified Credit $4,577,800 Estate and Gift Tax Exclusion Amount $11,580,000 Top Gift and Estate Tax Rate 40%
GST Exemption $11,580,000
2% portion of estate tax under I.R.C. §6166 $1,570,000; ($1,590 for 2021)
Note: For 2021, the first $159,000 of gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts under I.R.C. §§2503 and 2523(i)(2) made during 2021.
SPECIAL USE VALUATION – DEATH IN 2020 (I.R.C. §2032A) Interest Rates for purposes of I.R.C. §2032A(e)(7)(A)(ii):
31 Texas, FCB: 5.12%
FCB Territories:
AgFirst: Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina Pennsylvania, South Carolina, Virginia, West Virginia AgriBank: Arkansas, Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri,
Nebraska, North Dakota, Ohio, South Dakota, Tennessee, Wisconsin, Wyoming
CoBank: Alaska, Arizona, California, Colorado, Connecticut, Hawaii, Idaho, Kansas, Maine, Massachusetts, Montana, New Hampshire
Texas: Alabama, Louisiana, Mississippi, Texas
Maximum reduction in value: $1,180,000 ($1,190,000 for deaths in 2021) Source: Rev. Rul 2020-17 and Rev. Proc. 2020-45
EDUCATOR EXPENSES
