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November 28, 2018

2019 Tax Brackets

Amir El-Sibaie

Amir El-Sibaie

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On a yearly basis the IRS adjusts more than 40 tax provisions for inflation. This is done to prevent what is called “bracket creep,” when people are pushed into higher income tax brackets or have reduced value from credits and deductions due to inflation, instead of any increase in real income.

The IRS used to use the Consumer Price Index (CPI) to calculate the past year’s inflation.[1] However, with the Tax Cuts and Jobs Act of 2017, the IRS will now use the Chained Consumer Price Index (C-CPI) to adjust income thresholds, deduction amounts, and credit values accordingly.[2]

Income Tax Brackets and Rates

In 2019, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows (Tables 1). The top marginal income tax rate of 37 percent will hit taxpayers with taxable income of $510,300 and higher for single filers and $612,350 and higher for married couples filing jointly.

2019 Tax Brackets for Single Filers, Married Couples Filing Jointly, and Heads of Households
Rate For Unmarried Individuals, Taxable Income Over For Married Individuals Filing Joint Returns, Taxable Income Over For Heads of Households, Taxable Income Over
10% Up to $9,700 Up to $19,400 Up to $9,700
12% $9,701 to $39,475 $19,401 to $78,950 $13,851 to $52,850
22% $39,476 to $84,200 $78,951 to $168,400 $52,851 to $84,200
24% $84,201 to $160,725 $168,401 to $321,450 $84,201 to $160,700
32% $$160,726 to $204,100 $321,451 to $408,200 $160,701 to $204,100
35% $204,101 to $510,300 $408,201 to $612,350 $204,101 to $510,300
37% Over $510,300 Over $612,350 Over $510,300

Standard Deduction and Personal Exemption

The standard deduction for single filers will increase by $200 and by $400 for married couples filing jointly (Table 2).

The personal exemption for 2019 remains eliminated.

Table 2. 2019 Standard Deduction and Personal Exemption
Filing Status                                   Deduction Amount

Single

 $12,200

Married Filing Jointly

 $24,400

Head of Household

 $18,350

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 (Table 3).

Table 3. 2019 Alternative Minimum Tax Exemptions
Filing Status Exemption Amount

Unmarried Individuals

 $71,700

Married Filing Jointly

 $111,700

In 2019, the 28 percent AMT rate applies to excess AMTI of $194,800 for all taxpayers ($97,400 for married couples filing separate returns).

AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2019, the exemption will start phasing out at $510,300 in AMTI for single filers and $1,020,600 for married taxpayers filing jointly (Table 4).

Table 4. 2019 Alternative Minimum Tax Exemption Phaseout Thresholds
Filing Status Threshold

Unmarried Individuals

 $510,300

Married Filing Jointly

 $1,020,600

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.

Table 5. 2019 Earned Income Tax Credit Parameters
Filing Status   No Children One Child Two Children Three or More Children

Single or Head of Household

Income at Max Credit

 $6,920 $10,370 $14,570 $14,570

Maximum Credit

 $529 $3,526 $5,828 $6,557

Phaseout Begins

 $8,650 $19,030 $19,030 $19,030

Phaseout Ends (Credit Equals Zero)

 $15,570 $41,094 $46,703 $50,162

Married Filing Jointly

Income at Max Credit

 $6,920 $10,370 $14,570 $14,570

Maximum Credit

 $529 $3,526 $5,828 $6,557

Phaseout Begins

 $14,450 $24,820 $24,820 $24,820

Phaseout Ends (Credit Equals Zero)

 $21,370 $46,884 $52,493 $55,952

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

Long-term capital gains are taxed using different brackets and rates than ordinary income.

Table 6. 2019 Capital Gains Brackets
  For Unmarried Individuals, Taxable Capital Gains Over For Married Individuals Filing Joint Returns, Taxable Capital Gains Over For Heads of Households, Taxable Capital Gains Over
0% $0 $0 $0
15% $39,375 $78,750 $52,750
20% $434,550 $488,850 $461,700

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 (Table 7).

Table 7. 2019 Qualified Business Income Deduction Thresholds
Filing Status Threshold

Unmarried Individuals

 $160,700

Married Filing Jointly

 $321,400

Annual Exclusion for Gifts

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.

See New Tax Brackets

Notes

[1] Internal Revenue Service, “Revenue Procedure 2018-57,” https://www.irs.gov/pub/irs-drop/rp-18-57.pdf.

[2] Robert Cage, John Greenlees, and Patrick Jackman, “Introducing the Chained Consumer Price Index,” U.S. Bureau of Labor Statistics, May 2003, https://www.bls.gov/cpi/additional-resources/chained-cpi-introduction.pdf.

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Amir El-Sibaie

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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

Inflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power.

A pass-through business is a sole proprietorship, partnership, or S corporation that is not subject to the corporate income tax; instead, this business reports its income on the individual income tax returns of the owners and is taxed at individual income tax rates.

A tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat.

A tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the IRS, preventing them from having to pay income tax.

The standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act as an incentive for taxpayers not to itemize deductions when filing their federal income taxes.

An individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S.

A tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly.

Taxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income.