The Internal Revenue Service has published Revenue Procedure 2019-44, a new set of official numbers that will affect people’s 2020 taxes.
The IRS publishes a similar parameters document every year. The parameters documents give the new, inflation-adjusted figures for many important minimums and maximums, such as limits on cafeteria plan contributions.
William Ruane, an official in the Office of the Associate Chief Counsel for Income Tax and Accounting, has returned as the principal author.
Here are 10 provisions from the document that could affect clients who have, or who are considering, life insurance, health insurance or long-term care insurance.
Numbers for Life Insurance and Estate Planning
- Unified Credit Against Estate Tax
To $11.58 million for a decedent dying in 2020, from $11.4 million for a decedent dying in 2019.
- Gift Tax Exclusion
The exclusion for 2020 will be $15,000 for gifts to any person, and $157,000 for gifts to a spouse who is not a citizen of the United States. That compares with 2019 limits of $15,000 for gifts to any person, and $155,000 for gifts to a non-U.S. citizen spouse.
Numbers for Health Insurance and Benefits
- Cafeteria plans
The dollar limit for voluntary employee salary reductions for contributions to health flexible spending arrangements (FSAs) will increase to $2,750, from $2,700.
- Medical Savings Accounts
The MSA is the ancestor of the HSA, and of the health reimbursement arrangement.
An MSA holder is supposed to combine high-deductible health coverage with a special savings account.
For 2020, the acceptable deductible ranges will be $2,350 to $3,550 for self-only coverage, and $4,750 to $7,100 for family coverage, For 2019, the acceptable deductible ranges are $2,350 to $3,500 for self-only coverage, and $4,650 to $7,000 for family coverage.
The maximum annual out-of-pocket expense limits will increase to $4,750 for individuals and $8,650 for families, from $4,650 for individuals and $8,550 for families.
- Qualified Small Employer Health Reimbursement Arrangement
The maximum eligible employer reimbursement amounts for this program will increase to $5,250 for individual coverage and from $10,600 for family coverage, from $5,150 for individual coverage and $10,450 for family coverage.
- Requirement to Maintain Minimum Essential Coverage
For the past few years, the IRS has imposed an Affordable Care Act penalty on many individuals who failed to have what the government has classified as “minimum essential coverage” (MEC), or solid major medical coverage. For 2019, the base “applicable dollar amount” for calculating the penalty was $695. But Section 11081 of the Tax Cuts and Jobs Act of 2017 set the penalty at $0 for taxable years beginning after Dec. 31, 2019.
Last year, the IRS did not bother to put in an amount for calculating the penalty.
This year, the IRS has left out the section related to the penalty.
- Affordable Care Act Premium Tax Credit Subsidy Clawbacks
The ACA premium tax credit subsidy helps low-income and moderate-income people pay for private individual and family major medical coverage purchased through the ACA public exchange system.
Most people who use the subsidy take it in the form of an “advance premium tax credit” (APTC) subsidy, based on how much money they might earn during a year. After the year ends, when the APTC users file their taxes and find out how much they actually earned, those APTC users are supposed to get extra money back from the government, if they earned less than expected.
The government is supposed to claw back cash from APTC users who earned more than expected and received too much APTC subsidy help.
The ACA tries to limit APTC clawback pain, by setting limits on how much the government can claw back from low-income and moderate-income APTC users, based on the assumption that few low-income and moderate-income have thousands of spare dollars they can use to pay big, unexpected tax bills. The limits depend on how much the APTC users earn when compared with the federal poverty level (FPL).
Here’s what will happen to the clawback limits.
- Household income under 200% FPL: to $325, from $300.
- Household income 200% to 299% FPL: to will hold steady at $800.
- Household income 300% to 399% FPL: to $1,350, from $1,325.
- Household income under 200% FPL: will hold steady at $600.
- Household income 200% to 299% FPL: to $1,600, from $1,550.
- Household income 300% to 399% FPL: to $2,650, from $2,600.
Numbers for Long-Term Care Planners
- Eligible Long-Term Care Premiums
Clients who have high enough medical bills to benefit from itemizing their medical expenses can include at least some of their private long-term care insurance premiums in their medical expense total.
The amounts that can be included in the medial expense total vary by age.
Here’s how the 2020 “includible” premium levels compare with the 2019 levels:
- 40 or under: will increase to $430, from $420.
- More than 40 and up to 50: will increase to $810, from $790.
- More than 50 and up to 60: will increase to $1,630, from $1,580.
- More than 60 and up to 70: will increase to $4,350, from $4,220.
- 70 and older: will increase to $5,430, from $5,270.
The increases are much bigger than the 2019 increases. For 2019, for example, the deductible for people ages 70 and older increased just $70. For 2020, the deduction for people in that age group will increased by $160.
- The Qualified Long-Term Care Insurance Contract or Life Insurance Contract Per Diem Limitation
The dollar limit on the benefits will increase to $380 per day, from $370 per day.
A Legislative Advocacy Number
- Reporting Exception Limit
The IRS offers a reporting exception for some tax-exempt organizations with nondeductible lobbying expenditures.
The reporting exception limit will increase to $119 or less for 2020, from $117 or less for 2019.
A copy of Revenue Procedure 2019-44 is available here.
— Read 9 New 2018 Tax Numbers to Know, on ThinkAdvisor.