2018 Tax Reform: Provisions for Individuals
posted Dec 21, 2017 by Laura H. Yalanis, CPA, MST in the Global Tax Blog
After weeks of deliberation, Congress has officially passed the tax overhaul bill, making sweeping changes to existing tax law. It is now in the President’s hands to sign, and it is expected to affect all corners of the U.S. economy, and every individual in it.
A bit more on the final bill
Tax cuts for corporations and business owners are a heavy focus in the final bill. However, it also expands and restores several tax benefits for individuals related to earlier bills passed by the House and Senate. The individual provisions will expire at the end of 2025, whereas the corporate provisions are permanent. One important thing to note is that the bill does not affect 2017 taxes, which will be filed by most in the coming months.
Overview of provisions for individuals
Individual Rates are Lowered - The bill preserves seven tax brackets but changes the rates as follows:
- 10% (income up to $9,525 for individuals; up to $19,050 for married couples filing jointly)
- 12% (over $9,525 to $38,700; over $19,050 to $77,400 for couples)
- 22% (over $38,700 to $82,500; over $77,400 to $165,000 for couples)
- 24% (over $82,500 to $157,500; over $165,000 to $315,000 for couples)
- 32% (over $157,500 to $200,000; over $315,000 to $400,000 for couples)
- 35% (over $200,000 to $500,000; over $400,000 to $600,000 for couples)
- 37% (over $500,000; over $600,000 for couples)
- Standard deduction is basically doubled - The bill increases the standard deduction to $12,000 for single filers (currently $6,350). For married couples, the bill increases the deduction from $12,700 to $24,000.
- Personal exemptions are out - The GOP tax plan eliminates the ability to claim a $4,050 personal exemption for yourself, your spouse and each of your dependents.
- SALT deductions are now limited - The final bill will cap the state and local tax deduction at $10,000, contrary to today’s unlimited deduction.
- Child tax credit is expanded - The bill doubles this credit to $2,000 for children under 17.
- Temporary credit for non-child dependents - Parents will now be able to take a $500 credit for each non-child dependent whom they are supporting (children over 17, ailing elderly parent, adult child with a disability)
- Cap on mortgage interest deduction lowered - Taking out a new mortgage on a first or second home? You are only allowed to deduct the interest on debt up to $750,000 (as opposed to today’s $1 million deduction). Note that if you already have a mortgage, you will not be affected by this change.
- Home equity loan deduction no longer allowed (currently permitted on loans up to $100,000)
- Fewer people affected by the Alternative Minimum Tax - The final bill keeps the AMT in place, but now only those making more than $70,300 and $109,400 (single and married couples, respectively) could be affected by the AMT.
- The medical expenses, student loan interest and classroom supplies deductions are all preserved.
- Almost everyone is exempt from the estate tax - Prior to this bill passing, you owed the estate tax only if your estate was worth more than $5.49 million. That amount is now doubled to $10.98 million per person which continues to be indexed for inflation.
- Slower inflation adjustments in tax code - Chained CPI, or Consumer Price Index will be used to measure inflation, which is a slower measure than is used right now. The result is that your deductions, credits and exemptions will be worth less and it will subject more of your income to higher rates in future years.
- Health insurance mandate is repealed - You no longer incur a penalty for not buying insurance. This is expected to reduce how much the federal government spends on Medicaid and insurance subsidies.
We know that factoring in these changes will be an ongoing process, but we wanted to provide you with an overview of how your individual situation will change under the new regulations. For further guidance, don’t hesitate to contact us, and don’t forget to tune into our webinar, “The Impact of Tax Reform on Businesses and Individuals” on January 10, 2018 at 10 AM.
Learn more about the Highlights of the New Tax Reform Law for Businesses.