We are getting close to the year-end, and you may be wondering about what tax bracket you’ll end up in, and for good reason. There are a lot of reasons why you might be searching for 2019 tax bracket information right now. Reasons could include:
- year-end gifting to charitable groups
- decisions to take bonus pay now or next year
- decisions to exercise stock options
- decisions about taking money out of your IRA
- taking RMD distributions from your IRA
- maxing out your 401k at the end of the year
- finding out if you qualify to contribute to a Roth IRA
Every year the IRS adjusts the income tax brackets for inflation. This is done to try and help people not get pushed into a higher tax bracket as their income goes up with inflation.
In 2019, the top income tax bracket is 37% for single taxpayers with an income of $510,300 and $612,350 for married couples filing jointly.
Here’s a table with the marginal income tax brackets:
I get a lot of questions from clients about how marginal tax brackets work. This is very important to understand, and it’s often misunderstood. You pay the tax rate shown on income in that bracket only. For example, let’s say you’re filing as an Unmarried Individual and your taxable income is $50,000. Using the chart above, you’ll pay 0% tax on the first $9,700 of taxable income. Next, you’ll pay 12% on income between $9,700 and $39,475. Next, you’ll pay 22% on the income between $39,475 and $50,000. So you don’t pay 22% on all of your $50,000 of taxable income. It’s broken up into those tax categories, or margins. If your income goes up into the next higher tax bracket, you don’t get taxed that higher rate on ALL of your income. You only pay the higher rate on the income that is above the bracket threshold.
Standard Deduction and Personal Exemption
The standard deduction for single filers increased by $200 and by $400 for married couples filing jointly. Most people will end up taking the standard deductions rather than itemized deductions.
The personal exemption for 2019 remains eliminated.
Alternative Minimum Tax
The Alternative Minimum Tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two.
The AMT uses an alternative definition of taxable income called Alternative Minimum Taxable Income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, this exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent.
The AMT exemption amount for 2019 is $71,700 for singles and $111,700 for married couples filing jointly.
Earned Income Tax Credit
The maximum Earned Income Tax Credit in 2019 for single and joint filers is $529, if the filer has no children (Table 5). The maximum credit is $3,526 for one child, $5,828 for two children, and $6,557 for three or more children. All these are relatively small increases from 2018.
Child Tax Credit
The child tax credit totals at $2,000 per qualifying child and is not adjusted for inflation. However, the refundable portion of the Child Tax Credit, also known as the Additional Child Tax Credit, is adjusted for inflation. The Additional Child Tax Credit will remain at $1,400 for 2019.
Capital Gains Tax
Long-term capital gains (meaning the asset has been held for 1 year of more) are taxed differently than ordinary income.
Qualified Business Income Deduction (Sec. 199A)
The Tax Cuts and Jobs Act includes a 20 percent deduction for pass-through businesses against up to $160,700 of qualified business income for unmarried taxpayers and $321,400 for married taxpayers.
Annual Gift Exclusion
In 2019, the first $15,000 of gifts to any person are excluded from tax. The exclusion is increased to $155,000 for gifts to spouses.