IRS Releases 2019 Inflation Adjustment Amounts

The IRS has released new inflation-adjusted amounts for 2019. These figures generally apply to tax years beginning in 2019 or transactions or events occurring in calendar year 2019. Included are the tax rate tables, the beginning income levels for the limitation on certain itemized deductions, and the beginning income levels for the phaseout of personal exemptions and credits.

The inflation-adjusted amounts include the following:

Kiddie Tax

• For purposes of determining whether a child’s unearned income is taxed at the parent’s tax rate under Code Sec. 1(g), the amount by which the child’s net unearned income for 2019 is $1,100.
• The child’s income can be reported on the parent’s return if the child’s gross income is more than $1,100, and less than $11,000.
• The exemption amount for purposes of the alternative minimum tax cannot exceed the sum of the child’s earned income for the tax year, plus $7,750.

Maximum Capital Gains Rate

• For tax years beginning in 2019, the maximum zero rate amount under Code Sec. 1(h)(1)(B)(i) = $78,750 in the case of a joint return or surviving spouse,
• $52,750 = individual who is a head of household,
• $39,375 = any other individual (other than an estate or trust), and
• $2,650 = an estate or trust.

The maximum 15-percent rate amount under Code Sec. 1(h)(C)(ii)(l) is $488,850 = joint return or surviving spouse (half such amount in the case of a married individual filing a separate return),

• $461,700 = individual who is the head of a household,
• $434,550 any other individual (other than an estate or trust), and
• $12,950 = an estate or trust.

Adoption Credit

• The adoption credit is $14,080.
• The credit begins to phase out for taxpayers with modified adjusted gross income in excess of $211,160 and is completely phased out for taxpayers with modified adjusted gross income of $251,160 or more.
• The amounts of adoption assistance that can be excluded from an employee’s gross income is also $14,080, with the same phaseout as the adoption credit.

Child Tax Credit

• The value used to determine the amount of child tax credit under Code Sec. 24 that may be refundable is $1,400.

Education Tax Credit

• The Hope Scholarship Credit under Code Sec. 25A(b)(1), as increased under Code Sec. 25A(i) (the American Opportunity Tax Credit), is 100 percent of qualified tuition and related expenses of up to $2,000, plus 25 percent of excess expenses not above $4,000.
• Thus, the maximum Hope Scholarship Credit allowable is $2,500. The AOTC was made permanent by the Protecting Americans from Tax Hikes Act (PATH Act) of 2015 ( P.L. 114-113). A taxpayer’s MAGI above $58,000 ($116,000 for a joint return) is used to determine the reduction under Code Sec. 25A(d)(2) in the amount of Lifetime Learning Credit otherwise allowable.

Earned Income Tax Credit.  In 2019, the maximum EITC is:

• $6,557 for taxpayers with three or more qualifying children
• $5,828 for taxpayers with two qualifying children
• $3,526 for taxpayers with one qualifying child, and
• $529 for taxpayers with no qualifying children.

The credit amount begins to phase out at an income level of $19,030 ($8,650 for taxpayers with no qualifying children). The credit is not allowed if the aggregate amount of certain investment income exceeds $3,600.

Refundable Credit for Coverage Under a Qualified Health Plan. For tax years beginning in 2019, the limitation on tax imposed under Code Sec. 36B(f)(2)(B) for excess advance credit payments is determined as follows:

• If household income (expressed as a percent of the poverty line) is less than 200 percent, the limitation amount for unmarried individuals is $300.
• The limit for married individuals, surviving spouses and head of household is $600.
• If household income is 200 percent but less than 300 percent, the limit for unmarried individuals is $800 and for all other taxpayers is $1,600.
• If household income is 300 percent but less than 400 percent, the limit for unmarried individuals is $1,325 and for all other taxpayers it is $2,650.

Rehabilitation Expenditures Treated as Separate New Building

• For tax year 2019, the per low-income unit qualified basis amount under Code Sec. 42(e)(3)(A)(ii)(II) is $7,000.

Low-Income Housing Credit

• The amount used to calculate the 2019 state housing credit ceiling for the low-income housing credit under Code Sec. 42(h)(3)(C)(ii) is the greater of $2.75625 multiplied by the state population or $3,166,875.

Employee health insurance expense of small employers

• For calendar year 2019, the dollar amount in effect under Code Sec. 45R(d)(3)(B) = $27,100.

Alternative Minimum Tax. The AMT exemption amounts are:

• $71,700 (single, head-of-household),
• $55,850 (married filing separately),
• $111,700 (married filing jointly, surviving spouses)
• $25,000 (estates, trusts).
• The exemption amounts phase out when AMTI exceeds $1,020,600 (married filing jointly, surviving spouses), $510,300 (single, head-of-household), $510,300 (married filing separately) and 83,500 (estates and trusts).

Standard Deduction. The standard deduction amounts under Code Sec. 63(c)(2) for 2019 are:

• $24,400 (married filing jointly, surviving spouses),
• $18,350 (head of household), and
• $12,200 (unmarried and married filing separately).
• The standard deduction that can be claimed as a dependent by another taxpayer cannot exceed the greater of $1,100 or the sum of $350 plus the individual’s earned income.
• The additional standard deduction amount for the aged or blind is $1,300 ($1,650 if the individual is also unmarried and not a surviving spouse).

Cafeteria Plans

• The dollar limitation under Code Sec. 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is $2,700.

Transportation Fringe Benefit

• The monthly limitation under Code Sec. 132(f)(2)(A) regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $265.
• The monthly limitation under Code Sec. 132(f)(2)(B) regarding the fringe benefit exclusion for qualified parking is $265.

Savings Bond Education Exclusion

• The exclusion under Code Sec. 135 for taxpayers who pay qualified higher education expenses begins to phase out for modified adjusted gross income (MAGI) above $121,600 for joint returns and $81,100 for other returns.
• The exclusion phases out completely at MAGI levels of $151,600 for joint returns and $96,100 for other returns.

Private Activity Bonds Volume Cap

• The calendar-year 2019 amounts used under Code Sec. 146(d)(1)to calculate the state ceiling for the volume cap for private activity bonds is the greater of (1) $105 multiplied by the state population, or (2) $316,745,000.

Loan Limits on Agricultural Bonds

• The 2019 loan limit amount on agricultural bonds under Code Sec. 147(c)(2)(A) for first-time farmers is $543,800.

Personal Exemption

• The personal exemption amount is zero for tax years beginning after December 31, 2017, and before January 1, 2026.

Code Sec. 179 property

• For tax years beginning in 2019, under Code Sec. 179(b)(1), the aggregate cost of any Code Sec. 179 property that a taxpayer elects to treat as an expense cannot exceed $1,020,000. The cost of any sport utility vehicle that may be taken into account under Code Sec. 179cannot exceed $25,500. Under Code Sec. 179(b)(2), the $2,550,000 limitation is reduced, but not below zero, by the amount by which the cost of Code Sec. 179 property placed in service during the 2019 tax year exceeds $2,550,000.

Qualified Business Income. For tax years beginning in 2019, the threshold amount under Code Sec. 199A(e)(2) is:

• $321,400 for married filing joint returns,
• $160,725 for married filing separate returns, and
• $160,700 for single and head of household returns.

Long-term Care Premiums

• The limitations under Code Sec. 213(d)(10) regarding eligible long-term care premiums includible in the term “medical care” are $420 (attained age of 40 or less before close of tax year), $790 (41-50), $1,580 (51-60), $4,220 (61-70) and $5,270 (over 70).

Medical Savings Accounts. For tax years beginning in 2019, the term “high deductible health plan” as defined in Code Sec. 220(c)(2)(A) means:

• for self-only coverage, a health plan that has an annual deductible that is not less than $2,350 and not more than $3,500, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,650.
• For family coverage, the term means a health plan that has an annual deductible that is not less than $4,650 and not more than $7,000, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $8,550.

Interest on Education Loans

• The $2,500 maximum deduction for interest paid on qualified education loans under Code Sec. 221 begins to phase out for taxpayers with modified adjusted gross income in excess of $70,000 ($140,000 for joint returns), and is completely phased out for taxpayers with modified adjusted gross income of $80,000 or more ($165,000 or more for joint returns).

Limitation on Use of Cash Method of Accounting

• For tax years beginning in 2019, a corporation or partnership meets the gross receipts test of Code Sec. 448(c) for any tax year if the average annual gross receipts of such entity for the 3-tax-year period ending with the tax year which precedes such tax year does not exceed $26,000,000.

Threshold for Excess Business Loss

• For tax years beginning in 2019, in determining a taxpayer’s excess business loss, the amount under Code Sec. 461(l)(3)(A)(ii)(II) is $255,000 ($510,000 for joint returns).

Treatment of Dues Paid to Agricultural or Horticultural Organizations

• For tax years beginning in 2019, the limitation under Code Sec. 512(d)(1), regarding the exemption of annual dues required to be paid by a member to an agricultural or horticultural organization, is $169.

Low-Cost Article

• For purposes of defining the term “unrelated trade or business” for certain exempt organizations under Code Sec. 513(h)(2), “low cost articles” are those costing $11.1 or less.

Insurance Companies other than Life Insurance Companies.

• For tax years beginning in 2019, under Code Sec. 831(b)(2)(A)(i) the amount of the limit on net written premiums or direct written premiums, whichever is greater, is $2,300,000 to elect the alternative tax for certain small companies to be taxed only on taxable investment income.
• Expatriation to Avoid Tax. For calendar year 2019, under Code Sec. 877A(g)(1)(A), unless an exception under Code Sec. 877A(g)(1)(B) applies, an individual is a covered expatriate if the individual’s “average annual net income tax” under Code Sec. 877(a)(2)(A)for the five tax years ending before the expatriation date is more than $165,000.

Tax Responsibilities of Expatriation

• For tax years beginning in 2019, the amount that would be includible in the gross income of a covered expatriate by reason of Code Sec. 877A(a)(1) is reduced (but not below zero) by $713,000.

Foreign Earned Income Exclusion

• The foreign earned income exclusion amount under Code Sec. 911(b)(2)(D)(i) is $105,900.

Debt Instruments Arising Out of Sales or Exchanges

• For calendar year 2019, a qualified debt instrument under Code Sec. 1274A(b) has stated principal that does not exceed $5,944,600, and a cash method debt instrument under Code Sec. 1274A(c)(2) has stated principal that does not exceed $4,246,200.

Unified Credit Against Estate Tax

• For an estate of any decedent dying in calendar year 2019, the basic exclusion amount is $5,600,000 for determining the amount of the unified credit against estate tax under Code Sec. 2010.

Gross State Valuation of Real Property

• For an estate of a decedent dying in calendar year 2019, if the executor elects to use the special use valuation method under Code Sec. 2032A for qualified real property, the aggregate decrease in the value of qualified real property resulting from electing to use Code Sec. 2032A for purposes of the estate tax cannot exceed $1,160,000.

Estate and Gift Taxes

• The annual gift tax exclusion from the total amount of taxable gifts made under Code Sec. 2503 remains $15,000.

Tax on Arrow Shafts

• For calendar year 2019, the tax imposed under Code Sec. 4161(b)(2)(A) on the first sale by the manufacturer, producer, or importer of any shaft of a type used in the manufacture of certain arrows is $0.52 per shaft.

Passenger Air Transportation Excise Tax

• For calendar year 2019, the tax under Code Sec. 4261(b)(1) on the amount paid for each domestic segment of taxable air transportation is $4.20.
• For calendar year 2019, the tax under Code Sec. 4261(c)(1) on any amount paid (whether within or without the United States) for any international air transportation, if the transportation begins or ends in the United States, generally is $18.60.
• Under Code Sec. 4261(c)(3), however, a lower amount applies under Code Sec. 4261(c)(1) to a domestic segment beginning or ending in Alaska or Hawaii, and the tax applies only to departures. For calendar year 2019, the rate is $9.30.

Reporting Exception for Certain Exempt Organizations with Nondeductible Lobbying Expenditures

• For tax years beginning in 2019, the annual per person, family, or entity dues limitation to qualify for the reporting exception under Code Sec. 6033(e)(3) regarding certain exempt organizations with nondeductible lobbying expenditures, is $117 or less.

Notice of Large Gifts from Foreign Persons

• Code Sec. 6039F authorizes the Treasury Department and the IRS to require recipients of gifts from certain foreign persons to report the gifts when the aggregate value of gifts received in the tax year exceeds $16,388.

Property Exempt from Levy

• The value of property exempt from levy under Code Sec. 6334(a)(2) (fuel, provisions, furniture, other household personal effects, arms for personal use, livestock and poultry) cannot exceed $9,540.
• The value of property exempt from levy under Code Sec. 6334(a)(3) (books and tools necessary for the trade, business or profession of the taxpayer) cannot exceed $4,770.

Failure-to-file Penalty

• If a return is not timely filed or if the tax owed by the taxpayer is not timely paid, a penalty is imposed unless the taxpayer shows that the delay resulted from a reasonable cause rather than willful neglect.
• For returns required to be filed in 2020, the amount of the additional tax under Code Sec. 6651(a) that is imposed for failure to file a tax return within 60 days of the due date of that return is not less than the lesser of $215 or 100 percent of the amount required to shown as tax on that return.

Penalty for Failure to File Information Returns

• For returns required to be filed in 2020, the IRS has provided inflation-adjusted penalty amounts under Code Sec. 6652(c) for failure to file information returns by certain trusts and exempt organizations. This includes:
  • (1) failure to file a return required under Code Sec. 6033(a)(1), relating to returns by exempt organizations, or Code Sec. 6012(a)(6), relating to returns by political organizations;
  • (2) failure to file a return required under Code Sec. 6034, relating to returns by certain trust, or Code Sec. 6043(b), relating to terminations, etc., of exempt organizations; and
  • (3) failure to file a disclosure required under Code Sec. 6033(a)(2). The amount of the penalty, as adjusted for inflation, depends on the type of entity and the nature of the failure to file.

Tax Return Preparer Penalties

• For any failure relating to a return or claim for refund required to be filed in 2020, the amounts under Code Sec. 6695 for penalties for tax return preparers, as adjusted for inflation, have been provided by the IRS.
• The penalty amounts vary according to the specific type of failure involved, including failure to furnish a copy to the taxpayer, failure to sign the return, failure to furnish an identifying number, failure to retain a copy or list, or failure to file correct information returns (for all of the foregoing, $50 per return or refund claim, with a maximum penalty of $26,500).
• Penalty amounts are also provided for failure related to negotiation of a check, and failure to be diligent in determining eligibility for certain specified tax credits ($530 per check or return, with no maximum).

Penalty for Failure to file Partnership Return

• Under Code Sec. 6698, a penalty may be imposed against a partnership that is required to file a partnership return but fails to timely do so or files a return that does not include all the necessary information.
• For returns required to be filed in 2020, the dollar amount used to determine the monthly amount of the penalty under Code Sec. 6698(b)(1) for failure to file a partnership return is $205.

Penalty for Failure to file S Corporation Return

• S corporations that fail to meet their information filing obligations under Code Sec. 6037 face a penalty imposed at the entity level.
• For returns required to be filed in 2020, the dollar amount used to determine the amount of the penalty under Code Sec. 6699(b)(1) for failure to file an S corporation return is $205.

Penalty for Failure to file Correct Information Return

• The IRS has provided inflation adjustments for certain civil penalties for returns and statements required to be filed in 2020. The penalty amounts under Code Sec. 6721 for failure to file correct information returns are:
  • (1) for persons with average gross receipts of more than $5,000,000, the penalty for failure to file correct payee statements is generally $270 (maximum $$3,339,000). However, it is $50 (maximum $556,500) per return if corrected on or before 30 days after the required filing date; $110 (maximum $1,669,500) if corrected after the 30th day but on or before August 1
  • (2) for persons with average gross receipts of $5,000,000 or less, the penalties per return are the same but the maximum penalty decreases to $1,113,000; $194,500 and $556,500 respectively. In addition, the IRS has provided the amount of penalties for persons whose failure to file was due to intentional disregard of the filing requirement (or the correct information reporting requirement), which vary depending on which return was required to be filed.

Penalty for Failure to Furnish Correct Payee Statement

• For any failure relating to a statement required to be furnished in 2020, the inflation-adjusted penalty amounts under Code Sec. 6722 for failure to furnish correct payee statements are provided by the IRS. This includes penalties for failure to furnish payee statements by:
  • (1) persons with average annual gross receipts for the most recent three tax years of  more than $5,000,000;
  • (2) persons with average annual gross receipts for the most recent three tax years of $5,000,000 or less; and
  • (3) persons whose failure to file correct statements was due to intentional disregard of the requirement to furnish a payee statement, or the correct information reporting requirement.

Revocation or Denial of Passport

• For calendar year 2019, for purposes of the revocation or denial of a passport in a case of certain tax delinquencies under Code Sec. 7345, the amount of a serious delinquent tax debt under is $52,000.

Attorney fee Award

• For fees incurred in calendar year 2019, the attorney fee award limitation under Code Sec. 7430(c)(1)(B)(iii) is $200 per hour.

Periodic Payments Received under Certain Contracts

• The 2019 dollar amount of the per diemlimitation under Code Sec. 7702B(d)(4), regarding periodic payments received under either a qualified long-term care insurance contract or a life insurance contract that are treated as paid by reason of the death of a chronically ill individual, is $370.

Qualified Small Employer Health Reimbursement Arrangement

• For tax years beginning in 2019, to qualify as a qualified small employer health reimbursement arrangement under Code Sec. 9831(d), the arrangement must provide that the total amount of payments and reimbursements for any year cannot exceed $5,150 ($10,450 for family coverage).

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