Mehmet E. Akgul
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Covers investment, financial analysis and related financial market issues for BrightHedge. He has extensive experience in portfolio management, business consulting, risk management, and accounting areas.
2019 Federal Income Tax Brackets
- by Mehmet E. Akgul
- May 30, 2019
After major tax legislation overhauls with the Tax Cuts and Jobs Act, most of the tax changes are inflation adjustments from 2018’s tax brackets.
The TCJA requires for annual inflation adjustments to be computed based on the chained consumer price index rather than the regular consumer price index. This permanent change results in rapid higher tax brackets for taxpayers.
2019 IRS Tax Brackets and Rates
(for taxes due in April 2020)
2019 Single Tax Brackets
| Taxable income is: Over - | But not over - | The tax is |
|---|---|---|
| USD 0 | USD 9,700 | 10% |
| USD 9,700 | USD 39,475 | USD 970.00 + 12% |
| USD 39,475 | USD 84,200 | USD 4,543.00 + 22% |
| USD 84,200 | USD 160,725 | USD 14,382.50 + 24% |
| USD 160,725 | USD 204,100 | USD 32,748.50 + 32% |
| USD 204,100 | USD 510,300 | USD 46,628.50 + 35% |
| USD 510,300 | . . . . . . | USD 153,798.50 + 37% |
2019 Married Filing Jointly Tax Brackets
| Taxable income is: Over - | But not over - | The tax is |
|---|---|---|
| USD 0 | USD 19,400 | 10% |
| USD 19,400 | USD 78,950 | USD 1,940.00 + 12% |
| USD 78,950 | USD 168,400 | USD 9,086.00 + 22% |
| USD 168,400 | USD 321,450 | USD 28,765.00 + 24% |
| USD 321,450 | USD 408,200 | USD 65,497.00 + 32% |
| USD 408,200 | USD 612,350 | USD 93,257.00 + 35% |
| USD 612,350 | . . . . . . | USD 164,709.50 + 37% |
2019 Married Filing Separately Tax Brackets
| Taxable income is: Over - | But not over - | The tax is |
|---|---|---|
| USD 0 | USD 9,700 | 10% |
| USD 9,700 | USD 39,475 | USD 970.00 + 12% |
| USD 39,475 | USD 84,200 | USD 4,543.00 + 22% |
| USD 84,200 | USD 160,725 | USD 14,382.50 + 24% |
| USD 160,725 | USD 204,100 | USD 32,748.50 + 32% |
| USD 204,100 | USD 306,175 | USD 46,628.50 + 35% |
| USD 306,175 | . . . . . . | USD 82,354.75 + 37% |
2019 Head of Household Tax Brackets
| Taxable income is: Over - | But not over - | The tax is |
|---|---|---|
| USD 0 | USD 13,850 | 10% |
| USD 13,850 | USD 52,850 | USD 1,385.00 + 12% |
| USD 52,850 | USD 84,200 | USD 6,065.00 + 22% |
| USD 84,200 | USD 160,700 | USD 12,962.00 + 24% |
| USD 160,700 | USD 204,100 | USD 31,322.00 + 32% |
| USD 204,100 | USD 510,300 | USD 45,210.00 + 35% |
| USD 510,300 | . . . . . . | USD 152,380.00 + 37% |
How to Calculate Tax Due and Effective Tax Rate?
Let’s assume that your taxable income (after USD 24,400 standard deduction and consider no credits for simplicity) is USD 84,000 and you are filing as married filing jointly. Your marginal tax rate is 22%. Now we will calculate your effective tax rate and the tax due. We will use the 10% tax rate on your income up to USD 19,400, the 12% tax rate on taxable income between USD 19,400 and USD 78,950, and 22% on the part of your taxable income over USD 78,950.
Here are our calculations;
USD 84,000 – USD 78,950 = USD 5,050
USD 5,050 x 22% = USD 1,111
USD 9,086 + USD 1,111 = USD 10,197 → total tax due
USD 10,197 / (USD 84,000 + USD 24,400)= 9,41% → effective tax rate
2019 Standard Deduction
| Filing Status | Deduction Amount |
|---|---|
| Single or Married filing separately | USD 12,200 |
| Married filing jointly or Qualifying widow(er) | USD 24,400 |
| Head of household | USD 18,350 |
The standard deduction for people who are over age 65 is USD 13,850 for single taxpayers, and USD 27,000 for married filing jointly taxpayers.
2019 Alternative Minimum Tax (AMT)
The AMT is an additional income tax under the current tax law. The AMT was created in 1969 to ensure that high-income taxpayers could not avoid taxes by using various tax shelters. The AMT adjusts high taxable income of taxpayers by setting limits on certain tax benefits. The taxpayers calculate the tentative minimum tax and the regular tax and are required to pay the excess amount if any.
2019 Alternative Minimum Tax Exemption
| Filing Status | Exemption Amount |
|---|---|
| Single or Head of household | USD 71,700 |
| Married filing jointly or Qualifying widow(er) | USD 111,700 |
| Married filing separately | USD 55,850 |
2019 Alternative Minimum Tax Brackets
| Filing Status | 26% AMT Tax Rate | 28% AMT Tax Rate |
|---|---|---|
| Married filing separately | AMTI up to USD 97,400 | excess AMTI of USD 97,400 |
| All other filers | AMTI up to USD 194,800 | excess AMTI of USD 194,800 |
To avoid a heavy tax burden for low- and middle-income taxpayers, IRS requires taxpayers to calculate alternative minimum taxable income (AMTI) with additional deductions and exemptions to determine the taxable income.
2019 Alternative Minimum Tax Exemption Phaseout Thresholds
| Filing Status | Threshold |
|---|---|
| Married filing jointly | USD 1,020,600 |
| All other filers | USD 510,300 |
How to Calculate Alternative Minimum Tax?
Using the same facts above for regular tax calculation, we need to add back standard deduction in our AMT calculation. Assume that the married filing jointly couple has an incentive stock option of USD 50,000.
The calculation is as follows;
USD 84,000 + USD 24,400 + USD 50,000 = USD 158,400 → Alternative minimum taxable income
USD 158,400 – USD 111,700 = USD 46,700
USD 46,700 x 26% = USD 12,142 → alternative minimum tax, which is higher than regular tax amount of USD 10,197 (calculated above)
Therefore, the taxpayer needs to pay additional USD 1,945 with alternative minimum tax.
2019 Long-Term Capital Gains Tax Rate
| Long-term capital gains tax rate | Single | Married filing jointly | Married filing separately | Head of household |
|---|---|---|---|---|
| 0% | USD 0 to USD 39,375 | USD 0 to USD 78,750 | USD 0 to USD 39,375 | USD 0 to USD 52,750 |
| 15% | USD 39,376 to USD 434,550 | USD 78,751 to USD 488,850 | USD 39,376 to USD 244,425 | USD 52,751 to USD 461,700 |
| 20% | USD 434,551 or more | USD 488,851 or more | USD 244,426 or more | USD 461,701 or more |
When you hold an asset for one year or less, the capital gain is defined as a short-term capital gain. Short-term capital gains are taxed as ordinary income.
How to Calculate Short- and Long-Term Capital Gains Tax?
Assume that you bought 500 shares of ABC stock at USD 20 per share and sold these shares at USD 25 per share. Your ordinary income is USD 108,400 and filed as married filing jointly.
Note: Ordinary income includes wages, salaries, interests, dividends, bonds (except municipal bonds).
If you hold these stocks less than a year (short-term capital gains tax);
(500 shares x USD 25) – (500 shares x USD 20) = USD 2,500 → capital gain
USD 2,500 x 20% = USD 500 → short-term capital gain tax
If you hold these stocks for more than a year (long-term capital gains tax);
(500 shares x USD 25) – (500 shares x USD 20) = USD 2,500 → capital gain
USD 2,500 x 15% = USD 375 → long-term capital gain tax
2019 Gift Tax Exclusion and Estate Tax Exemption
For 2019, the annual gift tax exclusion to gifts to each donee is USD 15,000.
The estate tax exemption is USD 11.4 million per decedent.
Buttom Line
While we try to simplify federal income tax brackets for individual taxpayers to figure the tax bill, you also need to consider whole tax forms and instructions for tax credits and deductions to lower your tax bracket.
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