On December 22, 2017, tax reforms from the Tax Cuts and Jobs Act were signed into law by President Donald Trump. The tax rates and numbers referenced in this article are reflective of the final law as it was written at that time.
Additionally, it’s important to remember the large majority of the changes imposed by the Tax Cuts and Jobs Act don’t affect your 2017 tax return. While you may notice a change in the paychecks you receive from your employer after Jan. 1, 2018, the bulk of the tax reform won’t go into effect until you file your return in 2019.
Almost all taxpayers are impacted by the tax reform changes. To bring you up-to-speed, here’s a quick rundown of those tax legislation changes. Use the calculator to estimate how your tax return could change next year.
2018 income tax brackets
| Tax Rate | Individual | Married Filing Separate | Head of Household | Married Filing Joint |
|---|---|---|---|---|
| 10% | $0 - $9,525 | $0 - $9,525 | $0 - $13,600 | $0 -19050 |
| 12% | $9,526 - $38,700 | $9,526 - $38,700 | $13,601 - $51,800 | $19,051 - $77,400 |
| 22% | $38,701 - $82,500 | $38,701 - $82,500 | $51,801 - $82,500 | $77,401 - $165,000 |
| 24% | $82,501 - $157,500 | $82,501 - $157,500 | $82,501 - $157,500 | $165,001 - $315,000 |
| 32% | $157,501 - $200,000 | $157,501 - $200,000 | $157,501 - $200,000 | $315,001 - $400,000 |
| 35% | $200,001 - $500,000 | $200,001 - $300,000 | $200,001 - $500,000 | $400,001 - $600,000 |
| 37% | over $500,000 | over $300,000 | over $500,000 | over $600,000 |
Remember to not simply multiply all of your income by the top rate. Learn how income tax brackets work.
Standard deductions
| Taxable Income | Tax Rate |
|---|---|
| $0 - $2,550 | 10% |
| $2,551 - $9,150 | 24% |
| $9,151 - $12,500 | 35% |
| over $12,500 | 37% |
If you’re age 65 or older, blind or disabled, you can add an additional $1,300 to your standard deduction ($1,600 for unmarried taxpayers). Yes, that extra money is on top of the standard dollar amount available to taxpayers within your filing status.
State and local taxes
Under the new tax plan, taxpayers can deduct up to $10,000 in state and local income taxes. Previously, there was no cap on the amount you could write-off. Filers simply had to choose between deducting their state income tax or sales tax; both were not deductible together. All other state and local taxes, such as property taxes, could be deducted together.
Moving forward, you still have to choose between deducting state income tax or sales tax. And you can still deduct property taxes. That total simply can’t exceed the $10,000 threshold for tax year 2018.
Mortgage interest deduction
The Tax Cuts and Jobs Act bill allows taxpayers with existing mortgages (before Dec. 15, 2017) to deduct interest up to $1 million in mortgage debt. That’s for both a primary and secondary residence.
If you purchase a home in 2018, however, that’s where the changes to this section of the tax code begin. The $1 million deductible limit drops to $750,000.
Additionally, the tax reform removes the deduction for interest on home-equity loans through 2025.
Charitable contribution deduction
While the deduction for charitable contributions was one of the few not removed or altered under the new plan, the increase in the standard deduction rates may make it harder for some individuals to reap the tax benefits of donating.
If you previously itemized your deductions, you may no longer need to do so because the standard deduction doubles for tax year 2018. That means, unless the value of your itemized deductions totals more than the new $12,000 standard deduction for Single filers, it’ll likely be more worthwhile to claim the standard deduction. In that case, your charitable contributions will not impact your 2018 federal tax return like they may have in previous years.
That said, charitable contributions can still potentially affect your state return.
Medical expense deduction
While original versions of the bill eliminated the medical expense deduction, the final version expands it for two years. All taxpayers can write-off qualifying medical expenses that exceed 7.5 percent of their adjusted gross income (AGI) in 2017 and 2018. After 2018, the threshold adjusts to 10 percent of a taxpayer’s AGI.
The 7.5 percent threshold has been in place for individuals aged 65 years or older for several years.
Capital gains
Capital gains taxes on the sale of a home remain intact under the Tax Cuts and Jobs Act. If you file Single, you can exclude up to $250,000 of profits on your home as long as it was your primary residence for at least two of the past five years. Married couples filing jointly can exclude up to $500,000.
Child Tax Credit
In 2018, the Child Tax Credit (CTC) doubles in value from $1,000 to $2,000. Additionally, $1,400 of the credit is now refundable. That means after your tax liability is paid, you will receive any remaining refundable portion of the credit in a tax refund. But like most tax credits, the amount available is subject to phase-outs beginning with an adjusted gross income (AGI) of $200,000 for single taxpayers and an AGI of $400,000 for those filing a joint return.
New credit for non-child dependents
Taxpayers with dependents that do not qualify for the CTC can claim a new nonrefundable credit of $500. That applies to every child and non-child dependent that is older than the CTC requirements.
The credit can’t be claimed for the taxpayer themselves or their spouse, however.
Child and Dependent Care Tax Credit
A credit not impacted by the tax reform changes is the Child and Dependent Care Tax Credit. If you paid someone to care for your child, like a daycare center, a babysitter or summer camp, while you worked, you may qualify to claim that credit.
Education tax benefits
The new tax reforms still allow taxpayers with student loans to claim a deduction of up to $2,500 for the interest paid on those loans each year. One key piece of this deduction for those who qualify is that it can be claimed without itemizing deductions. It is considered an “above-the-line” deduction, meaning it is subtracted from your income before any other deductions and lowers your AGI.
The student loan interest deduction is subject to phase-outs, however. As a Single filer, once your income reaches $65,000, the deduction value is reduced. It goes away entirely if your AGI is $80,000 or more.
And, despite the initial concern, graduate students are not required to pay income tax on any tuition waivers.
Several other areas of education-related tax benefits also remain untouched. Employers can still give their employees up to $5,250 in tax-free tuition reimbursements and the American Opportunity and Lifetime Learning credits stay the same.
One notable change in education tax law surrounds 529 savings plans. Up to $10,000 in those accounts can now be used to cover the cost of K-12 education annually. That includes some expenses related to homeschooling. Previously those funds could only pay for college tuition and fees.
Lost deductions
Moving expenses (still applicable for military personnel)
Unreimbursed employee expenses
Employer-subsidized parking and transportation reimbursement
Casualty and theft losses (except those attributable to a federally declared disaster)
Tax preparation expenses
Other miscellaneous deductions previously subject to the 2 percent AGI cap
Affordable Care Act individual mandate
Under the Tax Cuts and Jobs Act, the individual mandate tied to the Affordable Care Act has been repealed. That means taxpayers who previously purchased health insurance through a government marketplace to meet the ACA requirements are no longer subject to the tax penalties if they decide to go without coverage in 2019. (The individual mandate is still in place for tax year 2018.)
Alternative Minimum Tax (AMT)
As the changes are currently written, the AMT rates are adjusted for inflation. They are also permanent.
| Filing Status | 2017 Exemption | 2018 Exemption |
|---|---|---|
| Single | 54,300 | 70,300 |
| Married Filing Jointly & Surviving Spouse | 84,500 | 109,400 |
Estate tax exemption
Tax rates for trusts and estates are slated to change under the tax reform as well.
| Taxable Income | Tax Rate |
|---|---|
| $0 - $2,550 | 10% |
| $2,551 - $9,150 | 24% |
| $9,151 - $12,500 | 35% |
| over $12,500 | 37% |
Tax breaks under tax reform are temporary
As you work to understand the Tax Cuts and Jobs Act of 2017, keep in mind all of the changes are currently temporary. Once the year 2025 rolls around, the newly revised tax rules will revert back to the old tax plan unless extended by Congress at that time.
