After making big changes to the tax code at the end of 2017, the government made another round of changes to tax brackets for 2020.
Here’s what you need to know:
- The standard deduction for married couples is to $25,100.
- For individuals, the standard deduction is $12,550.
The earned income credit goes up in 2020, as well. A married couple filing jointly who claim three children as dependents could be eligible for a tax credit of as much as $6,660, depending on their total income.
When you file for the earned income tax credit, the federal government may delay your refund by a few weeks. If this is your first time filing for the credit, the delay may come by surprise, so be sure to budget accordingly.
Here are the new tax brackets for 2020:
- 10%: Individuals earning $9,875 or less/Married couples earning $19,750 or less
- 12%: Individuals earning $9,876/Married couples earning $19,751
- 22%: Individuals earning $40,126/Married couples earning $80,251
- 24%: Individuals earning $85,525/Married couples earning $171,051
- 32%: Individuals earning $163,301/Married couples earning $326,601
- 35%: Individuals earning $207,351/Married couples earning $414,701
- 37%: Individuals earning $518,401/Married couples earning $622,051
With these tax brackets in mind, it’s important to take a close look at your withholdings on your first few paychecks in 2020. While you probably don’t want to face a tax bill when you file, you also don’t need to voluntarily reduce your income by loaning the government money throughout the year.
How to change the amount of money held from your paycheck
Adjust your withholding if necessary by filing a new W-2 form with your company’s human resources department.
- To increase the amount of money held from your paycheck, reduce your exemptions.
- To decrease the amount of money held from your paycheck, increase your exemptions.
Changes should take effect with your next paycheck but verify the timing with the person who handles payroll for your employer.
If you want to eliminate your tax refund by increasing the amount of each paycheck, be sure you have a solid budget in place. Try to set aside a certain amount of money out of each paycheck for unexpected expenses and money emergencies.
If you count on your tax refund to help catch up with normal bills every year, you aren’t alone. Now is the time to start working on a realistic budget that will help you understand how best to spend your income.
Taxes can be overwhelming. That's why we've created the Sunset Finance Guide to Tax Returns to provide more information.