The legislation popularly known as the Tax Cuts & Jobs Act did not exactly “rewrite the book” of federal tax laws, but it almost seems that way. On January 1, a host of important, new tax provisions entered the Internal Revenue Code, and others were suddenly repealed.
Due to these reforms, federal tax law has changed to a degree unseen since the 1980s. This guide reviews the major adjustments to the Internal Revenue Code and more:
- Key tax changes for households
- Key tax changes for businesses
- Tax breaks gone in 2018
- Social Security & Medicare changes
- COLAs & Phase-Out Range Adjustments
- Last, but not least, some other, interesting developments
Just a reminder as you read this guide: you should consult with a qualified tax or financial professional before making short-term or long-term changes to your tax or financial strategy.
Key Tax Changes for Households – Whether you file singly, jointly, or as a head of household, you will want to keep these significant alterations to federal tax law in mind. These new tax provisions will remain in place through at least 2025.
1 – Lower income tax rates and adjusted tax brackets. Thanks to the tax reforms, the seven income tax brackets of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% have been revised to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The new taxable income thresholds:
Bracket / Single Filers / Married Filing Jointly / Married Filing / Head of Household or Qualifying Widower Separately
10% $0 – $9,525 $0 – $19,050 $0 – $9,525 $0 – $13,600
12% $9,526 – $38,700 $19,051 – $77,400 $9,526 – $38,700 $13,601 – $51,800
22% $38,701 – $82,500 $77,401 – $165,000 $38,701 – $82,500 $51,801 – $82,500
24% $82,501 – $157,500 $165,001 – $315,000 $82,501 – $157,500 $82,501 – $157,500
32% $157,501 – $200,000 $315,001 – $400,000 $157,501 – $200,000 $157,001 – $200,000
35% $200,001 – $500,000 $400,001 – $600,000 $200,001 – $300,000 $200,001 – $500,000
37% $500,001 and up $600,001 and up $300,001 and up $500,001 and up
The federal government is now using the Chained Consumer Price Index to calculate inflation. That should reduce the size of the yearly adjustments to these brackets.
In scrutinizing all this, you may notice something: the “marriage penalty” applying to combined incomes is nearly gone. That is, the thresholds for joint filers are simply double what they are for single filers for five of the seven brackets. Only married couples in the two uppermost brackets now face the “marriage penalty.”
2 – The standard deduction nearly doubles. While the personal exemption is gone (more about that later), the new law gives an enormous boost to the standard deduction in 2018 for all filers.
*Single filer: $12,000 (instead of $6,500)
*Married couples filing separately: $12,000 (instead of $6,500)
*Head of household: $18,000 (instead of $9,350)
*Married couples filing jointly & surviving spouses: $24,000 (instead of $13,000)
Incidentally, the additional standard deduction remains in place. Single filers who are blind, disabled, or aged 65 or older can claim an additional $1,600 deduction for 2018. Married joint filers can claim additional standard deductions of $1,300 each for a total additional standard deduction of $2,600 in 2018.3
3 – AMT exemption amounts are much larger. The Alternative Minimum Tax was never intended to apply to the middle class – but because it went decades without inflation adjustments, it sometimes did. Thanks to the tax reforms, the AMT exemption amounts are now permanently subject to inflation indexing.
Look at the change in AMT exemption amounts for 2018:
*Single filer or head of household: $70,300 (was $54,300 in 2017)
*Married couples filing separately: $54,700 (was $42,250 in 2017)
*Married couples filing jointly & surviving spouses: $109,400 (was $84,500 in 2017)
These increases are certainly sizable, yet they pale in proportion to the increase in the phase-out thresholds. They are now at $500,000 for individuals and $1 million for joint filers, as opposed to respective, prior thresholds of $120,700 and $160,900.2
