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Tax Cuts and Jobs Act
Changes to Individual Income Tax for 2018 and 'Beyond' 

The Tax Cuts and Jobs Act reformed both individual income and corporate income taxes. The United States is moving toward a territorial system of business taxation. Here, we deal with what this means to American workers…not business.  HERE IS WHAT IT MEANS TO YOU IN PLAIN ENGLISH:


Tax Cuts and Jobs Act – HIGHLIGHTS
You will file your 2018 taxes by April 15, 2019.

  • TCJA lowers most individual income tax rates, including the top marginal rate from 39.6% to 37%. 

  • TCJA retains current 7- bracket structure, but brackets are lowered.

Table 1 & Table 2 show you exactly what we mean:

Table 1 - Single Flier

TAX CUT AND JOB ACT -TCJA

Table 2 - Married Filing Jointly

TAX CUT AND JOB ACT -TCJA

Tax Cuts and Jobs Act SUMMARY – EFFECTIVE 2018

 

  • Standard Deduction: Increases to $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers in 2018 compared to $6,500, $9,550, and $13,000 in 2017.

  • Personal Exemption – Eliminated: The personal exemption amount for 2017 was $4,050.

 

  • Charitable Contribution Deduction: Still good!

  • Mortgage Interest Deduction: Still Good! Limited to the first $750,000 in principal value.

 

  • State and Local Tax Deduction: Limited to a combined $10,000 for income, sales, and property taxes. Taxes paid or accrued in carrying on a trade or business are not limited.

  • The Earned Income Tax Credit:  The EITC is a refundable tax credit targeted at low-income workers. The majority of benefits accrue to people with an adjusted gross income (AGI) under $30,000, and about a third of benefits accrue to people with an AGI under $15,000. The EITC is well-targeted towards low-income workers, reducing poverty and counteracting instances of regressivity in the tax code. It also encourages work participation among certain groups. Click here for more detailed EITC information. 

  • Child Tax Credit: Up to $2,000 per qualifying dependent child 16 or younger at the end of the calendar year. New in 2018 is a $500 nonrefundable credit for qualifying dependents other than children…for example a dependent aging parent.

 

  • The Child and Dependent Care Tax Credit: Get you 20% to 35% up to $3,000 of child care and similar costs for a child under 13, an incapacitated spouse or parent, or another dependent so that you can work. (and up to $6,000 of expenses for two or more dependents). This credit is not refundable, which means it can reduce your tax bill to zero, but you won’t get a refund on anything left over from the credit.

    • NOTE: Some states also offer their own versions of this credit for child care and dependent care. They are often simply a percentage of the federal credit, but your state could expand eligibility, adjust the income thresholds or provide other incentives.

 

  • Student Loan Interest Deduction:  For 2018, maximum amount remains at $2,500.

 

  • American Opportunity Credit also known as the Hope Scholarship Tax Credit: The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. But, if the credit pays your tax down to zero, you can have 40 percent of the remaining amount of the credit (up to $1,000) refunded to you.

 

  • Lifetime Learning Credit: For 2017, an eligible taxpayer may qualify for the LLC, which provides a credit of up to $2,000 per return, not per student.

 

  • Individual HEALTH INSURANCE: Repeals the individual HEALTH INSURANCE penalty, by lowering the penalty amount to $0, effective January 1, 2019. Still in effect for 2018 is the penalty of $695 per adult and $347.50 per child for a maximum of $2,085 per family, or 2.5 percent of the household income, whichever is greater. (Subject to an increase for inflation)

 

  • Alimony Payments: In any divorce commenced after Dec. 31, 2018, the spouse paying alimony can't deduct it, and the spouse receiving the money no longer must pay taxes on it.

 

  • Jan. 2019 - Taxpayers see the individual mandate penalty and alimony deductions disappear.

DETAILS at Tax Foundation:  Tax Cuts and Job Act


TAX NOTE: W2s start arriving January 31st.
Your employers are required to provide you with Form W-2, Wage and Tax Statement. Unless you signed up for electronic delivery, your employer must mail or hand-deliver your W-2 to you no later than January 31st. You can view your W-2 online by logging in or watch for them in your mailbox.


Jim Robinson CFP at Back2Civilian@gmail.com