How the Tax Cuts and Jobs Act Affects Individual Taxpayers

Find out what the new tax law has in store for your personal taxes.

The Tax Cuts and Jobs Act (H.R. 1, “TCJA”) has been enacted into law. The bill contains many provisions affecting both individuals and businesses. The main provisions affecting individuals are summarized below. Except where noted otherwise below, all of these provisions take effect January 1, 2018. Thus, they do not affect your 2017 taxes. Except where otherwise noted, all of these changes are scheduled to expire on January 1, 2026, unless they are extended by Congress.

New Individual Tax Rates

The TCJA keeps seven tax brackets, but reduces income tax rates as follows:

2018 Personal Income Tax Rates

Rate

Married Filing Jointly

Individual Return

10%

$0 - $19,050

$0 - $9,525

12%

$19,050- $77,400

$9,525 - $38,700

22%

$77,400 - $165,000

$38,700 - $82,500

24%

$165,000 - $315,000

$82,500 - $157,500

32%

$315,000 - $400,000

$157,500 - $200,000

35%

$400,000 - $600,000

$200,000 - $500,000

37%

over $600,000

over $500,000

You can compare the new rates with the 2017 tax rates.

2017 Federal Personal Income Tax Rates

Tax Bracket

Income If Single

Income If Married Filing Jointly

10%

Up to $9,325

Up to $18,650

15%

$9,326 to $37,950

$18,651 to $75,900

25%

$37,951 to $91,900

$75,901 to $153,100

28%

$91,901 to $191,650

$153,101 to $233,350

33%

$191,651 to $416,700

$233,351 to $416,700

35%

$416,701 to $418,400

$416,701 to $470,700

39.6%

All over $418,400

All over $470,700

The new 12% tax rate covers more income than the 2017 10% and 15% brackets, resulting in lower taxes for many middle-income households. On the other end of the income spectrum, married taxpayers with incomes over $600,000, and singles with incomes over $500,000, pay tax at much lower rates—37% instead of 39.6% in 2017.

Doubling of Standard Deduction

The standard deduction, which reduces all individual taxpayers’ taxable income by a fixed amount, is roughly doubled to $12,000 for single individuals and $24,000 for marrieds filing jointly. Individuals whose taxable income is less than these amounts will pay zero income tax.

However, the $4,050 per-household-member personal exemption is eliminated. As a result, larger families may benefit little from the increase in the standard deduction.

Elimination of Most Itemized Deductions

Currently, about 30% of taxpayers itemize their personal deductions instead of taking the standard deduction. The increase in the standard deduction will result in even fewer taxpayers itemizing their deductions. Moreover, there are far fewer deductions for itemizers. The TCJA completely eliminates itemized deductions for:

  • unreimbursed employee expenses, such as mileage (currently deductible to the extent they exceed 2% of adjusted gross income)
  • tax preparation expenses
  • alimony payments
  • investment expenses
  • moving expenses to move to a new job, and
  • personal casualty losses (except for losses associated with special disaster relief legislation).

However, charitable contributions remain deductible by itemizers. Indeed, people who itemize will be allowed to deduct cash contributions up to 60% of their adjusted gross income, instead of 50% under current law.

Medical Expenses

Medical expenses continue to be deductible as a personal itemize deduction. In fact, it will now be easier to deduct such expenses. Under prior law, medical expenses were deductible only if, and to the extent, they exceeded 10% of a taxpayer’s adjusted gross income (AGI). This eliminated or greatly reduced the deduction for most people. Under the TCJA, the AGI threshold for deducting medical expenses is reduced from 10% to 7.5% for 2017 through 2019. This is one of the few provisions of the TCJA that applies retroactively to 2017. The threshold is scheduled to go back to 10% of AGI starting in 2020.

Deductions for Home Mortgage Interest

Under prior law, homeowners could deduct mortgage interest payments on up to $1 million in loan acquisition debt on a main home and a second home. Interest on up to $100,000 in home equity loan debt was also deductible. The TCJA limits the mortgage interest deduction to interest on $750,000 of acquisition indebtedness, a reduction of $250,000 from prior law. The new limit goes into effect January 1, 2018 and applies only to homes purchased after December 15, 2017. Taxpayers with a binding written contract in place before December 15, 2017 who purchase a home before April 1, 2018, can continue to deduct up to $1 million in acquisition debt.

Interest on home equity loans is no longer deductible. This applies to loans made before 2018 as well as to those taken out later.

Deductions for State and Local Taxes

Under prior law, individuals who itemized were allowed to deduct the full amount of property tax and state and other local taxes they paid each year, including state income and sales tax. The TCJA limits this deduction to a total of $10,000 for all of these taxes.

Deductions for Children

The child tax credit is increased to $2,000 per child under 17. Under prior law the credit was $1,000 per child. $1,400 of the credit is refundable, meaning you need owe no tax to receive the credit amount. Under prior law, the child tax credit was phased out for individual taxpayers with incomes over $75,000 and marrieds with incomes over $110,000. The TCJA increases these amounts to $200,000 and $400,000.

The plan also establishes a new $500 credit for each parent and nonchild dependent, such as college students.

Alternative Minimum Tax Relief

The Alternative Minimum Tax (AMT) is designed to ensure that higher income taxpayers who take many deductions must be at least some income tax. The TCJA increases the amount of income exempt from the AMT by 39%. As a result, fewer taxpayers will be subject to the AMT.

Estate Taxes

Under the TCJA, estates worth up $11 million per person are exempt from the federal estate tax, double the prior amount. This means that married couples with estates worth up to $22 million will not be affected by the federal estate tax.

Alimony Not Deductible

Under prior law, alimony could be deducted by the ex-spouse who paid it. The TCJA eliminates this deduction. However, ex-spouses who receive alimony will no longer be required to pay income tax on the payments.

Obamacare Individual Tax Penalty Repealed

The Affordable Care Act (popularly called Obamacare) required individuals to obtain minimally adequate health insurance for themselves and their dependents. Those that failed to comply had to pay a tax penalty to the IRS. The TCJA permanently eliminates this penalty starting 2019, effectively making individual compliance with Obamacare purely voluntary. However, the penalty remains in effect for 2018.

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