Important Tax Changes for Individuals in 2019

Learn about some of the more significant rule changes for individual taxpayers starting with the 2019 tax year.

Some important tax changes went into effect on January 1, 2019, including the wholesale changes brought about by the Tax Cuts and Jobs Act (TCJA). Here are some of the more significant rule changes for individual taxpayers starting with the 2019 tax year.

The Affordable Care Act’s Individual Tax Penalty is History

During 2014 through 2018, the Affordable Care Act (“ACA”; also called Obamacare) required all individuals to obtain minimally adequate health insurance coverage for themselves and their families each year. Those who failed to do so were required to pay a tax penalty—officially called the “shared responsibility payment”—to the IRS. For most people, the penalty was $695 per person ($347.50 per child). However, many people were exempt from the penalty due to their low income or other reasons. The Republican-led Congress eliminated the tax penalty completely starting in 2019.

Thus, you may not be charged an IRS penalty if you obtain no health insurance for yourself and your family for 2019 and later. However, some states are enacting their own state-wide health care individual mandates. Massachusetts has had it own health coverage mandate since 2006 and it remains in effect today. New Jersey passed a state-wide mandate that takes effect in 2019. Vermont passed a health coverage mandate that will take effect in 2020. Other states are considering implementing their own mandates—these likely won’t take effect until 2020 or later.

The ACA penalty remains in place for 2018. When you prepare your 2018 tax return, you'll have to show that you had health insurance coverage in 2018 or you will be subject to the penalty (unless you're exempt).

If you're an employee or employer, be aware that the ACA’s employer mandate remains in place in 2019 and later. This requires that employers with more than 50 full-time equivalent employees provide their employees with health insurance coverage meeting the ACA’s requirements or pay substantial penalties.

Despite the elimination of the individual mandate, ACA enrollment did not decline much for 2019. This is likely because the vast majority of individuals who obtain coverage through the ACA health exchanges receive tax credits that help them pay their premiums.

Medical Expenses are Harder to Deduct in 2019

Individual taxpayers who itemize their personal deductions are allowed to deduct their medical and dental expenses. Eligible expenses include both health insurance premiums and out-of-pocket expenses not covered by insurance. However, you can deduct only those expenses that exceed a specified percentage of your adjusted gross income (AGI).

For 2017 and 2018, taxpayers who itemized could deduct the amount of their medical and dental expenses that were more than 7.5% of their AGI. However, starting in 2019, only those expenses that are more than 10% of AGI are deductible. For example, if your 2019 AGI is $100,000, only medical and dental expenses exceeding $10,000 are deductible ($100,000 AGI x 10% = $10,000). If you have $12,000 in such expenses, you’ll get a $2,000 deduction. In 2018, you would have received a $4,500 deduction.

It’s Easier to Take Money Out of Your 401(k) Due to Hardships

If you have a 401(k) account, you are not supposed to take the money out until you reach age 59 ½. Early withdrawals are subject to a 10% penalty tax as well as regular income taxes. However, early withdrawals without penalty are permitted in the case of hardship. Such hardships include medical expenses, preventing eviction or foreclosure, tuition for higher education expenses, purchasing a home, paying the funeral expenses for a family member, or losses due to federally declared disasters.

Starting in 2019, the IRS liberalized its rules for taking hardship distributions. In the past, you were required to first attempt to borrow the money you needed from your 401(k) account, instead of taking a withdrawal. This is no longer required. Additionally, under former rules, you were not permitted to make any new contributions to your 401(k) for six months after you took a hardship distribution. This rule has been eliminated starting in 2019.

Big Change in Tax Rules for Alimony

For decades, alimony payments were deductible by the ex-spouse who made them and taxable income for the receiving ex-spouse. The alimony deduction saved on taxes because the alimony-paying ex-spouse was usually in a higher tax bracket than the alimony-receiving ex-spouse.

The deduction for alimony payments was permanently eliminated starting in 2019. Moreover, alimony recipients are no longer required to pay tax on their alimony payments or include them in income. This change applies to all divorces or legal separations finalized January 1, 2019 or later. The old rules continue to apply to divorces finalized before January 1, 2019. The new rules will result in many alimony-paying ex-spouses owing more in income taxes.

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