Ho hum, 2019 is here.
The Trump tax cuts that went into effect last year (2018) were a major overhaul of the tax code.
Let’s talk about what the biggest changes mean for you, along with discussing 2019 federal tax brackets, retirement account contribution limits, and income phaseout thresholds.
In this post:
- Federal income tax rates for 2019
- Standard deduction + personal exemption for 2019
- Phaseouts for 2019
- Alternative Minimum Tax
- Foreign earned income exclusion
- Retirement & tax-advantaged accounts
- Roth IRA Income Limits
- IRA Deduction Phaseouts
1. Federal income tax rates for 2019
Single Filers| If you make... | ...your marginal rate is... | ...so you will be taxed |
|---|---|---|
| $0-9,700 | 10% | 10% of taxable income |
| $9,700-39,475 | 12% | $970 + 12% of excess over $9,700 |
| $39,475-84,200 | 22% | $4,543 + 22% of excess over $39,475 |
| $84,200-160,725 | 24% | $14,382.50 + 24% of excess over $84,200 |
| $160,725-204,100 | 32% | $32,748.50 + 32% of excess over $160,725 |
| $204,100-510,300 | 35% | $46,628.50 + 35% of excess over $204,100 |
| $510,300+ | 37% | $153,798.50 + 37% of excess over $510,300 |
| If you make... | ...your marginal rate is... | ...so you will be taxed |
|---|---|---|
| $0-19,400 | 10% | 10% of taxable income |
| $19,400-78,950 | 12% | $1,940 + 12% of excess over $19,400 |
| $78,950-168,400 | 22% | $9,086 + 22% of excess over $78,950 |
| $168,400-321,450 | 24% | $28,765 + 24% of excess over $168,400 |
| $321,450-408,200 | 32% | $65,497 + 32% of excess over $321,450 |
| $408,200-612,350 | 35% | $93,257 + 35% of excess over $408,200 |
| $612,350+ | 37% | $164,709.50 + 37% of excess over $612,350 |
| If you make... | ...your marginal rate is... | ...so you will be taxed |
|---|---|---|
| $0-9,700 | 10% | 10% of taxable income |
| $9,700-39,475 | 12% | $970 + 12% of excess over $9,700 |
| $39,475-84,200 | 22% | $4,543 + 22% of excess over $39,475 |
| $84,200-160,725 | 24% | $14,382.50 + 24% of excess over $84,200 |
| $160,725-204,100 | 32% | $32,748.50 + 32% of excess over $160,725 |
| $204,100-306,175 | 35% | $46,628.50 + 35% of excess over $204,100 |
| $306,175+ | 37% | $82,354.75 + 37% of excess over $306,175 |
| If you make... | ...your marginal rate is... | ...so you will be taxed |
|---|---|---|
| $0-13,850 | 10% | 10% of taxable income |
| $13,850-52,850 | 12% | $1,385 + 12% of excess over $13,850 |
| $52,850-84,200 | 22% | $6,065 + 22% of excess over $52,850 |
| $84,200-160,700 | 24% | $12,962 + 24% of excess over $84,200 |
| $160,700-204,100 | 32% | $31,322 + 32% of excess over $160,700 |
| $204,100-510,300 | 35% | $45,210 + 35% of excess over $204,100 |
| $510,300+ | 37% | $152,380 + 37% of excess over $510,300 |
| If you make... | ...your marginal rate is... | ...so you will be taxed |
|---|---|---|
| $0-2,600 | 10% | 10% of taxable income |
| $2,600-9,300 | 24% | $260 + 24% of excess over $2,600 |
| $9,300-12,750 | 35% | $1,868 + 35% of excess over $9,300 |
| $12,750+ | 37% | $3,075.50 + 37% of excess over $12,750 |
2. Standard deduction + personal exemption for 2019
Standard Deduction + Personal Exemption| Filing Status | 2018 | 2019 |
|---|---|---|
| Single | $12,000 | $12,200 |
| Married Jointly + Surviving Spouses | $24,000 | $24,400 |
| Married Separately | $12,000 | $12,200 |
| Head of Household | $18,000 | $18,350 |
| Personal Exemption | $0 | $0 |
| Additional standard deduction for 65 and older or blind taxpayers | $1,300 / married payer $1,600 / unmarried payer | $1,300 / married payer $1,650 / unmarried payer |
3. Phaseouts for 2019
Pease phaseout
Prior to 2018, high earners itemizing deductions might have those deductions phased out by the Pease phaseout limits.
The Pease phaseout limits applied to: charitable deductions, home mortgage interest, state and local tax deductions, and other misc itemized deductions. They do not apply to medical expenses, investment expenses, gambling losses, or certain theft and casualty losses.
Starting in 2018 (continuing 2019), Pease phaseout limits no longer apply.
4. Alternative Minimum Tax
AMT is a Congress-enacted parallel tax system that is intended to ensure high earners don’t take too many itemized deductions to avoid their fair share of taxes. AMT requires taxpayers to compute their tax bill twice: once using regular tax rates, then again using AMT rates. You pay the higher of the two.
AMT uses a different definition of taxable income called Alternative Minimum Taxable Income (AMTI). As with the standard deduction, AMT lets you exempt a fixed amount from your AMTI. The 2019 exemptions amounts are:
AMT Exemptions| Filing Status | 2018 | 2019 |
|---|---|---|
| Single | $70,300 | $71,700 |
| Married Jointly | $109,400 | $111,700 |
| Married Separately | $54,700 | $55,850 |
| Trusts & Estates | $24,600 | $25,000 |
However, the AMT exemption phases out for high earners at a rate of 25 cents per dollar earned after AMTI exceeds a certain threshold. Those thresholds for 2019 are:
AMT Exemption Phaseout| Filing Status | 2018 | 2019 |
|---|---|---|
| Single | $500,000 | $510,300 |
| Married Jointly | $1,000,000 | $1,020,600 |
| Married Separately | $500,000 | $510,300 |
| Trusts & Estates | $82,050 | $83,500 |
AMT is charged at 26% of AMTI. However, once your AMTI exceeds a certain threshold, that rate increases to 28%. In 2019, the 28% rate applies to any AMTI exceeding…
AMT 28% Rate Thresholds| Filing Status | 2018 | 2019 |
|---|---|---|
| Single | $191,500 | $194,800 |
| Married Jointly | $191,500 | $194,800 |
| Married Separately | $95,750 | $97,450 |
| Trusts & Estates | $191,500 | $194,800 |
No, that’s not a typo. It’s $194,800 for EVERYONE except married taxpayers filing separately.
5. Foreign earned income exclusion
If you live abroad, the 2019 Foreign Earned Income Exclusion is $105,900, up from $103,900 in 2018 and $102,100 in 2017. I previously wrote about how to take advantage of the Foreign Earned Income Exclusion.
6. Retirement & tax-advantaged accounts
If you have a retirement account or HSA, there are some increases to 401k and HSA contribution limits you should be aware of.
Also, remember the “Last Month Rule” for HSAs: if you’re enrolled in an HSA-eligible high-deductible health plan on December 1 of a given year, you are considered eligible to contribute the full-year maximum to an HSA for that year instead of simply making a 1-month pro rata contribution for December. However, if you do that you must stay covered by an HDHP through December 1 of the following year, or else risk tax penalties on your prior-year HSA contributions.
Contribution Limits for Retirement & Tax Advantaged Accounts| Account Type | 2018 | 2019 |
|---|---|---|
| 401k, Roth 401k, Solo 401k, Solo Roth 401k, 403b, 457 plans | $18,500 | $19,000 |
| Additional catchup contributions for age 50+ on ALL 401k varieties, 403b, and 457 plans | $6,000 | $6,000 |
| IRA, Roth IRA plans | $5,500 | $6,000 |
| Additional catchup contributions for age 50+ on IRA and Roth IRA plans | $1,000 | $1,000 |
| SIMPLE 401k, SIMPLE IRA plans | $12,500 | $13,000 |
| Additional catchup contributions for age 50+ on SIMPLE 401k and SIMPLE IRA plans | $3,000 | $3,000 |
| Max contribution for ALL defined contribution plans: Solo 401k, Solo Roth 401k, SEP-IRA plans | $55,000 | $56,000 |
| Individual HSA | $3,450 | $3,500 |
| Minimum annual deductible for HSA’s High-Deductible Health Plan | $1,350 | $1,350 |
| Max annual out-of-pocket limit for HSA’s High-Deductible Health Plan | $6,650 | $6,750 |
| Family HSA | $6,900 | $7,000 |
| Minimum annual deductible for family HSA HDHP | $2,700 | $2,700 |
| Max annual out-of-pocket limit for family HSA HDHP | $13,300 | $13,500 |
7. Roth IRA Income Limits
Remember that Roth IRAs are subject to contribution limits based on how much income you earn. As your income increases, your max contribution decreases on a sliding scale, and it eventually goes to zero. See how to calculate the exact amount your Roth IRA contribution will be reduced by.
| If your filing status is... | And your modified AGI is... | Then you can contribute to a Roth IRA... |
|---|---|---|
| married filing jointly or qualifying widow(er) | < $193,000 | $6,000 per spouse |
| > $193,000 but < $203,000 | a reduced amount | |
| > $203,000 | zero | |
| married filing separately and you lived with your spouse at any time during the year | < $10,000 | a reduced amount |
| > $10,000 | zero | |
| single, head of household, or married filing separately and you did not live with your spouse at any time during the year | < $122,000 | $6,000 |
| > $122,000 but < $137,000 | a reduced amount | |
| > $137,000 | zero |
8. IRA Deduction Phaseouts
IRA contributions are tax-deductible; Roth IRA contributions are not.
IRA income limits may reduce the tax deductibility of your IRA contribution on a sliding scale as your income increases, eventually reducing your deduction to zero.
There are 2 versions of this deduction phaseout: (1) when you are covered by another retirement plan at work, and (2) when you are not.
If you are already covered by another retirement plan at work (which includes a SEP-IRA, SIMPLE, or Solo 401k), then the income limits for your IRA tax deductibility are:
| If your filing status is... | And your modified AGI is... | Then for your IRA you can take... |
|---|---|---|
| married filing jointly or qualifying widow(er) | < $103,000 | full deduction up to contribution limit |
| > $103,000 but < $123,000 | partial deduction | |
| > $123,000 | no deduction | |
| married filing separately and you lived with your spouse at any time during the year | < $10,000 | partial deduction |
| > $10,000 | no deduction | |
| single, head of household, or married filing separately and you did not live with your spouse at any time during the year | < $64,000 | full deduction up to contribution limit |
| > $64,000 but < $74,000 | partial deduction | |
| > $74,000 | no deduction |
On the other hand, if you are NOT covered by an existing retirement plan, then the income limits governing your IRA tax deductibility are:
| If your filing status is... | And your modified AGI is... | Then for your IRA you can take... |
|---|---|---|
| single, head of household, qualifying widow(er), or married filing separately and you did NOT live with your spouse at any time during the year | No limit | full deduction up to contribution limit |
| married filing jointly or separately + spouse is NOT covered by a plan at work | No limit | full deduction up to contribution limit |
| married filing jointly + spouse IS covered by a plan at work | < $193,000 | full deduction up to contribution limit |
| > $193,000 but < $203,000 | partial deduction | |
| > $203,000 | no deduction |
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