We're here to help, with this list of 12 changes that could surprise you this tax season. You might want to hire a tax pro to help you keep up.
IMPORTANT: The U.S. government has extended tax season, pushing the deadline back to July 15.
1. The standard deduction is even higher
The tax law that was signed late in 2017 made a substantial increase in the standard deduction, and it keeps getting even larger.
Hardly anyone is able to itemize deductions these days, which is happy news for taxpayers who tend to lose receipts.
On 2019 tax returns, singles or married people filing separately will be able to deduct $12,200, an increase of $200. For heads of household, the deduction will go up by $350 to $18,350. Married couples filing jointly can deduct an extra $400, with an increase to $24,400.
Do the math. Itemizing might be worth it in your case. Within limits, mortgage interest, contributions to charity, and state and local taxes are still deductible.
2. The IRS is helping you save more for retirement
The IRS is doing its part to pad retirement nest eggs.
Starting with the 2019 tax year, you can contribute more to your 401(k), 457, 403(b) or Thrift Savings Plan.
If you're younger than 50, you can save up to $19,000 annually. Workers 50 or older can squirrel away an extra $6,000, for a total of $25,000.
In 2020, the limits rise to $19,500 for taxpayers under 50, and $26,000 for those 50 and up.
For 2019, the annual limit on IRA contributions — which may be tax-deductible — has been raised for the first time since 2013, from $5,500 to $6,000. Those 50 or older may contribute an additional $1,000. IRA contributions made by April 15, 2020, can apply toward your 2019 return.
Financial planning help for retirement is closer than ever. It's available online now through companies like Facet Wealth.
3. You may not get a refund this year either
Lawmakers might have been overzealous when they lowered most tax brackets and issued new withholding tables in 2018.
Most workers got bigger paychecks but didn’t pay enough in taxes throughout the year. Millions were disappointed by measly or nonexistent tax refunds. Many had to pay instead.
If you didn’t get a refund last year and didn’t adjust your withholding, don’t count on a refund this time either.
Our federal tax system is pay-as-you-go. Taxes take a bite out of each paycheck throughout the year. When your withholding gives you fatter checks each payroll, you run the risk of owing taxes at year's end.
Tax help — such as what's available through H&R Block — can ensure you get your maximum refund every time.
More: Ensure you're maximizing your refund with H&R Block.
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4. You can deduct mortgage insurance again
When you buy a home and put less than a 20% down when you take out a mortgage, lenders usually require you to buy PMI: the dreaded private mortgage insurance. It's added to monthly mortgage payments.
Congress has made PMI premiums tax-deductible again. The popular tax break was retroactively extended as part of legislation passed late in 2019.
Taxpayers can take the write-off for 2019 and 2020, and those who couldn’t enjoy the then-expired tax break in 2018 can file an amended return.
But you need to itemize deductions in order to get the write-off. The IRS estimates that more than 90% of filers will take the standard deduction this tax season.
More: Compare current mortgage rates on LendingTree.
5. Seniors have their own tax form now
The alphabet soup of tax forms now includes the 1040-SR, a new form intended for taxpayers who are 65 or older.
It looks similar to the basic 1040 but features a larger font so that it's easier to read, and it puts sources of retirement income, including Social Security benefits and IRA distributions, on its first page, reports AARP.
Filers using the 1040-SR must take the standard deduction, not itemize. The form has a chart intended to make it easy to determine your standard deduction amount.
If you're a senior looking for ways to stretch your retirement savings, Facet Wealth can help with that.
6. Tax forms no longer ask if you have health insurance
The "shared responsibility payment" was a fee imposed with the Affordable Care Act. Under the health care law's "individual mandate" requiring every American to carry health insurance, you were supposed to pay a penalty with your tax return if you could afford coverage but chose not to buy it.
The law is still on the books, but the penalty has been reduced to zero for 2019 tax returns.
Note that this is all at the federal level. Your state may require you to hold individual health coverage and fine you if you don’t. Do your research to avoid an unpleasant surprise.
7. Writing off medical expenses didn't get tougher after all
If you'd heard that deducting medical expenses would be trickier this year — well, that was a false alarm.
You're still able to write off unreimbursed medical bills that exceed 7.5% of your adjusted gross income. The government had planned to bump up the threshold to 10% on 2019 tax forms, but Congress voted in December to keep the 7.5% floor for two more years.
Here's how the deduction works: If your taxable income is $60,000, 7.5% of that is $4,500. If your qualifying medical expenses total $8,000, you may deduct $3,500 of that ($8,000 minus $4,500).
Allowable deductions include: health insurance premiums; payments made to health care providers; transportation to and from medical facilities; treatment for substance abuse; and a long list of other expenses.
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8. The alimony deduction is gone
The rules have changed for married couples who call it quits.
Starting with the 2019 tax year, new alimony payers can no longer deduct the payments. On the flip side, ex-spouses who receive alimony aren’t taxed on the income. The changes apply only to couples whose divorces were finalized after 2018.
The changes seem pretty straightforward, but remember that we’re talking about the IRS here. Things get especially complicated in the context of retirement planning.
Depending on assets and age, alimony payers can transfer funds, tax-free, from retirement savings accounts to cover their payments. The ex who receives the money is liable for the taxes.
9. 'SALT' tax still stings
People living in high-tax states were hoping for some relief from congressional lawmakers — but so far, they haven't gotten it.
The 2017 tax law capped the federal deduction for state and local taxes, known by the acronym "SALT," at $10,000. Previously, there was no limit. Legislation to undo the limit, at least temporarily, has passed the U.S. House but not the Senate.
Members of Congress from high-cost coastal states such as New York, New Jersey and California say the diminished tax break is leading some residents to flee their states in search of tax savings.
10. The health savings account deduction is higher
Are you insured through a high-deductible health plan?
If so, you can stash pretax or tax-deductible dollars in a health savings account, or HSA, and watch your money grow. Distributions for qualified medical expenses are tax-free.
If you had an HSA in 2019, you could have contributed up to $3,500 into a self-only plan — up $50 from the 2018 limit of $3,450 — or $7,000 into a family account. The contribution can be deducted on your tax return if you funded the account yourself with after-tax dollars.
For 2020, the limits increase to $3,550 for an individual HSA and $7,100 for a family plan.
11. Larger inheritances are shielded from taxes
Few people pay estate taxes (called "death taxes" by their detractors), and in the 2019 tax year, even bigger inheritances are out of reach from them.
An individual's estate of up $11.4 million can be left to heirs without triggering estate or gift taxes — up from the 2018 limit of $11.18 million. A married couple can now leave $22.8 million tax-free, versus the old limit of $22.36 million.
For 2020, individuals will be able to shield estates of as much as $11.58 million from taxes, and the limit for a couple rises to $23.16 million.
Those figures apply to total legacies and gifts given over a lifetime. Annually, you can dole out cash or gifts worth up to $15,000 tax-free, to as many people as you like. Recipients aren’t taxed unless they sell a gift, such as a car, down the road.
12. A tax on medical devices is history
Some taxes that were intended to fund the Affordable Care Act have been sent to the chopping block. They include taxes on generous health plans and health care insurers.
A tax on medical devices is another example. It was a 2.3% excise tax on medical products sold in the U.S., including pacemakers, artificial knee and hip joints, and X-ray equipment.
The tax had been suspended since 2016, and Congress voted late in 2019 to kill it permanently.
A 2015 report from the nonpartisan Congressional Research Service warned about the potential for manufacturers to pass the tax along in the form of higher prices, though it concluded that the effect on consumers would be minor.
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