2019 Key Tax Numbers for Individuals

David K. MacLeod, CFP®, CFA

The IRS has announced updated tax brackets, the standard deduction, and other key tax numbers for 2019. As Orange County financial advisors, we’re interested in both the updated Internal Revenue Service numbers and California state income tax numbers; however, the California income tax numbers for 2019 have not yet been released.

Postcard 1040

Before we dive into the updated numbers, let’s take a look at the IRS’s new “postcard” half-page Form 1040.

The postcard 1040 is effective starting with 2018 tax filings—the first tax returns reflecting the tax code changes that Congress passed with the Tax Cuts and Jobs Act in late 2017. President Trump is responsible for pushing for the shorter form.

With the postcard 1040, you’ll enter your personal information on both sides, and sign and date the front side. This is what the back side looks like:

As you can see, the number of lines were dramatically cut from 79 to just 23. However, many of the eliminated lines still exist and were simply moved to six new additional forms: Schedules 1–6.

Tax Brackets

Below are the updated 2019 federal income tax brackets for taxpayers filing single, married filing jointly, or for an estate or trust. Tax rates ranging from 10% to 37% are unchanged from 2018. The income thresholds were increased a little for cost-of-living adjustments because of a higher Consumer Price Index (CPI), which means if your income in 2019 is the same as 2018, you’ll pay a little bit less in taxes.

Tax Rates Based on Taxable Income:

Standard Deduction

The standard deduction for single filers increased by $200 to $12,200. For married filing jointly filers, the standard deduction was increased to $24,400. Taxpayers over the age of 65 (and the blind) get an additional standard deduction of $1,650 (single filers) or $1,300 (for each married taxpayer).

State and Local Tax (SALT) Deduction

For taxpayers who itemize on Schedule A instead of claiming the standard deduction, the state and local tax deduction is capped at $10,000 in 2019 (same as 2018).

IRA and Roth IRA Contributions

The IRA and Roth IRA contribution limit has increased to $6,000 in 2019. For taxpayers age 50 and over, an additional $1,000 catch-up contribution is allowed for a total of $7,000.

Contributions to Roth IRAs are limited (or disallowed) for taxpayers with an income greater than $122,000 (single) or $193,000 (married filing jointly).

IRA contributions are fully deductible when an individual is not covered by an employer’s retirement plan. But if a single taxpayer is covered by a retirement plan, an IRA deduction is fully deductible only if income is less than $64,000.

For a married couple with one spouse covered by a retirement plan, income must be less than $103,000 for the covered spouse to qualify for the full IRA deduction. For the non-covered spouse to take the full deduction, income must be less than $193,000.

Contributions to employer retirement plans and IRAs qualify for a saver’s tax credit if income is less than $32,000 (single) or $64,000 (married filing jointly). The credit can be worth up to $1,000 per taxpayer depending on income limits.

Qualified Retirement Plan Contributions

Participants in 401(k), 403(b), and 457 retirement plans may make elective salary deferrals of up to $19,000 in 2019. For participants age 50 and over, an additional $6,000 catch-up contribution is allowed for a total of $25,000.

Participants in SIMPLE IRA and SIMPLE 401k retirement plans may make elective salary deferrals of up to $13,000 in 2019. For SIMPLE plan participants age 50 and over, an additional $3,000 catch-up contribution is allowed for a total of $16,000.

The limit on annual additions to defined contribution retirement plans was increased to $56,000.

Personal Exemption

The Tax Cuts and Jobs Act eliminated the personal exemption for all taxpayers effective 2018. This exemption was previously a $4,050 deduction for taxpayers who met certain income requirements.

Child Tax Credit

A credit of $2,000 is available for every qualifying child (dependent and under age 17) in a household. However, this credit begins to be phased out as income exceeds $200,000 (single) or $400,000 (married filing jointly).

Qualified Business Income Deduction (Section 199A)

Owners of pass-through businesses can take a 20% deduction against up to $160,700 (single) or $321,400 (married filing jointly) of qualified business income.

Capital Gains

Long-term capital gains tax rates are unchanged in 2019; however, the tax brackets have been updated:

Note that the Medicare surtax introduced by Obamacare includes capital gains in the definition of net investment income. So, when you realize capital gains with income over $200,000 (single) or $250,000 (married filing jointly), there is a 3.8% tax in addition to the tax rates shown above.

Health Insurance Penalty

Starting in 2019, the penalty for not maintaining health insurance coverage was eliminated. This was referred to as the individual mandate under Obamacare. In 2018 and earlier, this penalty could add up to hundreds or even thousands of dollars for uninsured individuals and families.

Alternative Minimum Tax (AMT)

The alternative minimum tax (AMT) uses a different set of rules to recalculate taxable income. If the tax owed by AMT is higher than a taxpayer’s regular tax liability, then the taxpayer will pay the higher amount.

The AMT exemption amount in 2019 is $71,700 (single) or $111,700 (married filing jointly). However, this exemption starts to phase out for taxpayers with income over $510,300 (single) or $1,020,600 (married filing jointly).

The AMT is assessed at two tax rates based on income: 26% and 28%.

Gift and Estate Tax

Gifts of up to $15,000 (unchanged from 2018) to any person can be made in 2019 without needing to file a gift tax return.

The unified gift and estate tax exclusion in 2019 is increased to $11.4 million. This means that a married couple can gift and/or pass through their estate up to $22.8 million without paying any gift and estate taxes. The tax rate of 40% is unchanged from 2018.

Social Security

For taxpayers who are still working, compensation of up to $132,900 is subject to FICA taxes for Social Security. The tax rate of 6.2% is unchanged.

For current recipients of Social Security benefits ages 62–66 who are still working, an earnings test is applied. The maximum amount one can earn without having benefits reduced is $17,640 in 2019.

Recipients of Social Security received a 2.8% cost of living adjustment in 2019.

Medicare Premiums

Medicare Part B premiums are set based on income. Taxpayers with income greater than $85,000 (single) or $170,000 (married filing jointly) are charged higher premiums.  Note that your 2019 premium amount is based on information from your 2017 tax return.

Whether we’re doing financial planning for retirement, or financial planning and analysis to help our clients start a family, taxes are a key consideration. As fiduciary financial advisors in Fullerton, Eclectic Associates is concerned with what you keep after taxes.

Schedule a 15-minute discovery call with a fee-only financial advisor to discuss your personal situation.