The IRS has enacted revenue procedure 2019-44 which updates rules in the tax code, which updates include regular adjustments for inflation. Included in these updates are adjustments to the 2020 tax brackets for estate and trust taxable income.
Important note: Estates and trusts pay income tax too!! Income tax is not only paid by individuals.
For tax year 2020, the tax brackets are 10%, 24%, 35%, and 37%. These are the same tax brackets from 2019.
10% Bracket
Taxable income not exceeding $2,600 results in a tax of 10% of the taxable income. This bracket is unchanged from 2019.
24% Bracket
Taxable income exceeding $2,600, but not exceeding $9,450, results in a tax of $260 plus 24% of the excess over $2,600. For 2019 tax year, taxable income exceeding $2,600, but not exceeding $9,300, resulted in a tax of $260 plus 24% of the excess over $2,600.
35% Bracket
Taxable income exceeding $9,450, but not exceeding $12,950, results in a tax of $1,904 plus 35% of the excess over $9,450. For 2019 tax year, taxable income over $9,300, but not exceeding $12,750, resulted in a tax of $1,868 plus 35% of the excess over $9,300.
37% Bracket
Taxable income exceeding $12,950 results in a tax of $3,129 plus 37% of the excess over $12,950. For 2019 tax year, taxable income over $12,750 resulted in a tax of $3,075.50 plus 37% of the excess over $12,750.
Examples:
Below are some examples of taxable income calculations in 2019 versus 2020:
- Taxable income of $2,550: the tax is $255.00 in both 2019 and 2020.
- Taxable income of $6,000: the tax $1,076.00 in both 2019 and 2020.
- Taxable income of $9,500: in 2019 the tax is $1,938.00 versus $1,921.50 in 2020.
- Taxable income of $13,000: in 2019 the tax is $3,168.00 versus $3,147.50 in 2020.
By Wayne R. Carrabus, CPA, ESQ, at Futterman, Lanza & Pasculli, LLP with offices in Smithtown, Bay Shore and Garden City, NY and clients throughout metro New York. He concentrates his practice on Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate, Estate Taxes, and Estate Administration.