The important "trigger" income levels 2020

[Gumby]

CORRECTED AS NOTED THROUGH POST #85 ON THIS THREAD

Recent threads about IRMAA and about Roth conversions have got me musing over the past week about the various limits/triggers of which we should be aware. I started the following list and happily solicit additions or corrections. I could easily be wrong, so speak up. If our joint effort works out well, perhaps it can become a FAQ.

The numbers will change over the years, as some (but not all) are indexed to inflation. However, just being aware that there is something to consider will be valuable even if you have to look up the precise numbers. Numbers are actual AGI/MAGI (i.e. - before standard or itemized deductions) unless indicated as Taxable Income by an asterisk * which means you can add $24,800 MFJ/$12,400 single if you use the standard deduction. Note also that MAGI and AGI are often not the same in different sections of the tax code. If you are close to one of the limits, ensure you know what is and is not included in income for that particular limit.

For social security taxation levels, I assume Social Security for a couple totaling $48,000/year ($2k per month x 2) and $24k/yr for a single person, and the income shown is all income, including full social security (i.e. - I divide the SS by 2 as required) and I assume no non-taxable interest. The calculation is set forth in post #51 below, so you can change it for your own expected Social Security payments.


Income level/effect (as of 1/1/2020) This for Married Filing Jointly. Numbers for single taxpayers are listed separately below.

$19,751* - 12% marginal tax bracket for ordinary income

$36,480 - maximum two people collecting Social Security prior to FRA can earn ($18,240 each) in W-2 income before Social Security is reduced

$56,000 - beginning of partial social security taxation (see note above regarding assumptions. Calculate your own number)

$67,640 - 400% FPL -- ACA subsidy eliminated (Household of two, Lower 48)

$80,001* - Long term capital gains taxed at 15%

$80,251* - 22% marginal tax bracket for ordinary income.

$89,176 - 50% of SS is taxable (see note above regarding assumptions. Calculate your own number)

$104,001 - begin limiting traditional IRA deduction amounts

$108,941 - 85% of social security is taxable (see note above)

$118,001 - begin Lifetime Learning Credit phaseout (for college costs)

$124,001 - no traditional IRA deductions allowed

$130,001 - Tuition and fees deduction drops from $4000 to $2000

$138,001 - Lifetime Learning Credit eliminated

$140,001 - Student loan interest deduction (up to $2500) phaseout begins

$150,001 - begin phaseout of CARES Act 1 ($1200/person), CARES 2 ($600/person) and 2021 American Rescue Plan Act ($1400/person) COVID-19 tax credits

$160,001 - Begin phaseout of American Opportunity Tax Credit (AOTC -- for college costs). Tuition and fees deduction ends. 2021 ARPA ($1400) COVID-19 Relief tax credit eliminated.

$170,001 - Student loan interest deduction ends

$171,051* - 24% tax bracket

$174,000 - CARES Act 2 ($600) credit eliminated

$174,001 - IRMAA Medicare surcharge begins (based on income two years prior)

$180,000 - AOTC is eliminated

$196,001 - begin limiting Roth contribution amounts

$198,000 - CARES Act 1 ($1200) credit eliminated (assuming 0 children).

$206,001 - no Roth contributions allowed (consider backdoor Roth)

$218,001 - IRMAA level 2 surcharge

$250,001 - NIIT 3.8% surcharge

$272,001 - IRMAA level 3

$326,001 - IRMAA level 4

$326,601* - 32% tax bracket

$414,701* - 35% tax bracket

$496,601* - 20% long term capital gains rate



Income level/effect (as of 1/1/2020) This is for Single Filers vv. Numbers for Married Filing Jointly are listed separately above ^^.

$9876* - 12% marginal tax bracket for ordinary income

$18,240 - maximum a single person collecting Social Security prior to FRA can earn in W-2 income before Social Security is reduced

$37,000 - beginning of partial taxation of SS (see note above regarding assumptions. Calculate your own number)

$40,001* - Long term capital gains taxed at 15%

$40,126* - 22% marginal tax bracket for ordinary income.

$49,960 - 400% FPL -- ACA subsidy eliminated (household of 1, Lower 48)

$54,824 - 50% of SS is taxable (see note above)

$59,001 - begin Lifetime Learning Credit phaseout (for college costs)

$64,706 - 85% of social security is taxable (see note above)

$65,001 - begin limiting traditional IRA deduction amounts. Tuition and fees deduction drops from $4000 to $2000

$70,001 - Student loan interest deduction (up to $2500) phaseout begins

$75,001 - no traditional IRA deductions allowed. Begin phaseout of CARES Act 1 ($1200/person), CARES 2 ($600/person) and 2021 American Rescue Plan Act ($1400/person) COVID-19 tax credits

$69,001 - Lifetime Learning Credit eliminated

$80,001 - begin phaseout of American Opportunity Tax Credit (AOTC -- for college costs). Tuition and fees deduction ends. 2021 ARPA ($1400) COVID-19 Relief tax credit eliminated.

$85,000 - Student loan interest deduction ends.

$85,526* - 24% tax bracket

$87,000 - Cares Act 2 ($600) credit eliminated

$87,001 - IRMAA Medicare surcharge begins (based on income two years prior)

$90,001 - AOTC is eliminated

$99,000 - CARES Act 1 ($1200) credit eliminated.

$109,001- IRMAA level 2 surcharge

$124,001 - begin limiting Roth contribution amounts

$136,001 - IRMAA level 3

$139,001 - no Roth contributions allowed (consider backdoor Roth)

$163,001 - IRMAA level 4

$163,301* - 32% tax bracket

$200,001 - NIIT 3.8% surcharge

$207,351* - 35% tax bracket

$441,451* - 20% long term capital gains rate

 

[MarieIG]

Excellent, thank you.

I did not even know about NIIT until you posted it in another thread. (I did see that line on the tax return for the extra Medicare tax - I did not know that it came about by dividend/interest being pushed up over earned income until you had posted about it in another thread.) Basically in the past, I have just paid taxes without thinking about ways to reduce them.

So, this will be a factor to consider with Roth conversions; when to take SS, etc.

 

[audreyh1]

I believe that the 2019 threshold for 20% capital gains rate for MFJ is $488,851 plus $24K standard deduction = effectively $512,851

 

[Gumby]

I believe that the 2019 threshold for 20% capital gains rate for MFJ is $488,851 plus $24K standard deduction = effectively $512,851

Right you are. I went ahead and changed it to the 2020 amount of 496,601. Thanks, Audrey.

Edit to add: Do you think it would be more useful to just go ahead and add the standard deduction to all the places it would apply?

 

[Aiming_4_55]

"$434,550* - 20% long term capital gains rate" might be a typo

$434,550 is the very top for Single - 15% long term capital gains rate

Suggested correction:

$434,551 or more is for Single - 20% long term capital gains rate
$496,601 or more if for Married filed Jointly long term capital gains rate

Thanks OP. Good timing of information. I was starting to consider some of these key numbers for planning.

 

[Gumby]

"$434,550* - 20% long term capital gains rate"

$434,550 is the very top of 15% long term capital gains rate

Suggested correction:

$434,551 or more is for Single - 20% long term capital gains rate
$488,851 or more if for Married filed Jointly long term capital gains rate

Thanks OP. Good timing of information. I was starting to consider some of these key numbers for planning.

Thanks, as I noted in response to Audrey, I changed the tax bracket numbers to 2020. In response to your observation, I have also added $1 to the beginning of all the tax brackets to be more precise.

 

[Golden sunsets]

Oh shoot. We'll get hit by NIIT in 2021 most likely. I assume this is Modified Adjusted Gross Income, adding back TE income? Also do you know offhand if the $250,000 threshold is ever indexed as many of the thresholds are?

Sorry too lazy to look it up. I figured you'd now Gumby


Edited to add: Found the answers. Sadly no indexing and it is Modified AGI.

 

[Gumby]

Oh shoot. We'll get hit by NIIT in 2021 most likely. I assume this is Modified Adjusted Gross Income, adding back TE income? Also do you know offhand if the $250,000 threshold is ever indexed as many of the thresholds are?

Sorry too lazy to look it up. I figured you'd now Gumby

This IRS document says the NIIT threshold is not indexed. https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax. The AGI it references is line 37 on the Form 1040. Going back to my 2017 return, which was the last one with a line 37, that does not include tax exempt interest.

 

[Aiming_4_55]

Roth IRA Income limit - Not eligible (consider Backdoor option)

In 2020 for singles $139,000 or over not eligible ($124,000 to $138,999 reduce contribution limit) and $206,000 or over for married filing jointly not eligible ($196,000 to $205,999 reduce contribution limit)

 

[grayv]

very nice work.

 

[mountainsoft]

I haven't heard of half the items on your list, but we won't have enough income in retirement to even reach the first item.

 

[MarieIG]

I believe that the 2019 threshold for 20% capital gains rate for MFJ is $488,851 plus $24K standard deduction = effectively $512,851

Hi Audrey, Is the NIIT imposed on capital gains? Thank you.

 

[Crabby Mike]

The IRMAA brackets you cite (starting with $170,000) are for 2019 IRMAA using 2017 tax info. That ship has long since sailed, so we should be looking ahead to 2021 IRMAAs based on 2019 tax returns. Unfortunately, the best info we have today is the 2020 IRMAA brackets, starting at $174,000, but since they're now indexed to inflation, we should be able to assume that 2021's will be at least as high, presumably slightly higher.


This is relevant to me today, as I decide how much discretionary tIRA distribution I can take to stay under the next IRMAA cliff.

 

[Perryinva]

2020 first tier IRMAA is $173k and change of 2018 MAGI.

 

[Gumby]

The IRMAA brackets you cite (starting with $170,000) are for 2019 IRMAA using 2017 tax info. That ship has long since sailed, so we should be looking ahead to 2021 IRMAAs based on 2019 tax returns. Unfortunately, the best info we have today is the 2020 IRMAA brackets, starting at $174,000, but since they're now indexed to inflation, we should be able to assume that 2021's will be at least as high, presumably slightly higher.


This is relevant to me today, as I decide how much discretionary tIRA distribution I can take to stay under the next IRMAA cliff.

Updated to 2020 numbers (based on 2018 income). Thanks, Mike.

 

[Ian S]

Very useful thanks!

 

[scrabbler1]

Gumby, would you be able to post a similar chart for singles?

 

[audreyh1]

Right you are. I went ahead and changed it to the 2020 amount of 496,601. Thanks, Audrey.

Edit to add: Do you think it would be more useful to just go ahead and add the standard deduction to all the places it would apply?

Tough call that one.

In my spreadsheets I use the tax bracket thresholds plus standard deduction because that’s the real limit for me. But that’s not the number people are expecting, so it would probably become too confusing.

 

[MacsNMore]

Thanks Gumby; this thread is great!

One note: The additional standard deduction for people who have reached age 65 (or who are blind) is $1,300 for each married taxpayer or $1,650 for unmarried taxpayers.

 

[audreyh1]

Hi Audrey, Is the NIIT imposed on capital gains? Thank you.

Yes, not on ordinary income. However, the NIIT calculation is based on your AGI which includes both. So as your ordinary income increases, whether due to starting SS and/or RMDs, your long-term capital gains/qualified dividends can be “pushed up” such that it crosses that threshold.

 

[MarieIG]

Yes, not on ordinary income. However, the NIIT calculation is based on your AGI which includes both. So as your ordinary income increases, whether due to starting SS and/or RMDs, your long-term capital gains/qualified dividends can be “pushed up” such that it crosses that threshold.

Thank you.

 

[SumDay]

Thanks Gumby. This is most excellent and is being printed to put in my magic money old-fashioned 3-ring notebook under the TAX tab.

 

[Octogirl]

+1. Thanks Gumby. I need to know income limits, SS, and tax rates in 2020.

 

[djsander]

For those still working there is also a .9% Medicare tax surcharge which is on wages, compensation and self employment wages over 250k. Employers must start withholding at 200k.

 

[audreyh1]

Here s a good summary of the inflation adjusted tax changes for 2020
https://taxfoundation.org/2020-tax-brackets/