The Tax Cut and Jobs Act of 2017, passed by Congress and signed by President Trump in December of 2017, contains the most sweeping change to the U.S. tax code in decades. H.R. 1, as approved by Congress, impacts virtually every individual and business on a level not seen in over 30 years. As with any tax bill, however, there will be “winners” and “losers.” This historic bill calls for lowering the individual and corporate tax rates, repealing countless tax credits and deductions, enhancing the child tax credit, boosting business expensing, and more. The bill also impacts the Affordable Care Act (ACA), effectively repealing the individual shared responsibility requirement. Most provisions are effective starting in 2018. Importantly, many of the changes to the Internal Revenue Code in the final bill are temporary. This is true especially with respect to the provisions of the bill impacting individuals. This decision was made in order to keep the bill within budgetary parameters, but with no guarantees that a future Congress would extend them.
While the reduction of the maximum corporate tax rate from 35% to 21% garnered many of the headlines leading up to passage of this bill, the changes for individual taxpayers are substantial. Notably, most taxpayers will receive a tax cut. To see examples of the magnitude of tax cuts for sample taxpayers or to estimate the impact on your own tax bill, click here.
The following is a summary of changes impacting individual tax payers.
Seven brackets remain. Income tiers and rates favor the taxpayer.
Old Tax Brackets
New Tax Brackets Under TCJA
|MARRIED FILING JOINTLY – 2017||MARRIED FILING JOINTLY – 2018|
|Not over $18,650||10%||Not over $19,050||10%|
|Over $18,650 but not over $75,900||15%||Over $19,050 but not over $77,400||12%|
|Over $75,900 but not over $153,100||25%||Over $77,400 but not over $165,000||22%|
|Over $153,100 but not over $233,350||28%||Over $165,000 but not over $315,000||24%|
|Over $233,350 but not over $416,700||33%||Over $315,000 but not over $400,000||32%|
|Over $416,700 but not over $470,700||35%||Over $400,000 but not over $600,000||35%|
|Over $470,700||39.6%||Over $600,000||37%|
|SINGLE – 2017||SINGLE – 2018|
|Not over $9,325||10%||Not over $9,525||10%|
|Over $9,325 but not over $37,950||15%||Over $9,525 but not over $38,700||12%|
|Over $37,950 but not over $91,900||25%||Over $38,700 but not over $82,500||22%|
|Over $91,900 but not over $191,650||28%||Over $82,500 but not over $157,500||24%|
|Over $191,650 but not over $416,700||33%||Over $157,500 but not over $200,000||32%|
|Over $416,700 but not over $418,400||35%||Over $200,000 but not over $500,000||35%|
|Over $418,400||39.6%||Over $500,000||37%|
|Personal Exemptions||$4,050 per dependent||Eliminated||1|
|3% of AGI Phase Out||$313,800||$261,500||No phase out of deductions||3|
|Medical Deductions||Medical expenses over 7.5% of AGI||Medical expenses over 7.5% of AGI||4|
|Mortgage Interest||Interest on home “Acquisition Indebtedness” capped to $1,000,000 of debt||Interest on home “Acquisition Indebtedness” capped at $750,000||5|
|Home Equity Indebtedness||Interest on $100,000 of debt||If “Acquisition Indebtedness,” then falls under Mortgage Interest rules|
|State/Local Income & Property Taxes||No limit||Capped at 10,000||6|
|Charitable Deductions||Deduction of cash gifts limited to 50% of AGI||Deduction of cash gifts limited to 60% of AGI||7|
|Personal Casualty & Theft Losses||Reduce loss by $100/casualty. Total losses can’t exceed 10% of AGI.||Limited to Federally declared Disaster Zones. Reduce loss by $500/casualty. No AGI limit.||8|
|Miscellaneous Itemized Deductions||Amount above 2% of AGI deductible||Not deductible||9|
Please note all of the above stated changes made by the Tax Cut and Jobs Act revert to 2017 tax laws on January 1, 2026.
|Alternative Minimum Tax||Tax rates of 26% and 28%||Tax rates of 26% and 28%|
|AMT Phase-out Income Level||$160,900||$120,700||$1,000,000||$500,000||2|
|AMTI threshold for 28% tax rate||$187,800||$191,500||3|
AMT-Exempt Amounts: Although the new tax laws don’t eliminate the alternative minimum tax, the exemption amounts for it are increasing significantly in 2018, to $70,300 for single filers and $109,400 for married couples filing jointly. In addition, those full exemptions are available to taxpayers with significantly higher incomes – $500,000 for individuals and $1 million for married couples filing jointly – than was previously the case. Due to the $10,000 cap on state and local taxes (SALT), very few people will be subject to AMT.
|Capital Gains Tax Brackets – Unchanged|
|Rate||Married Filing Jointly
Taxable Income Over
Taxable Income Over
As in years past, an additional 3.8% Medicare surtax will apply to the lesser of net investment income or the excess of modified adjusted gross income over $200,000 for single taxpayers and $250,000 for married couples filing jointly.
While exemptions have disappeared with the new tax reform, child tax credit amounts have doubled and the income limitations have increased significantly. Therefore, many who did not enjoy the benefits of the child tax credit in 2017 will now receive the benefit. Once your tax is calculated, tax credits can reduce your tax bill dollar for dollar. We do not cover the difference between refundable and non-refundable credits in this article.
If you have a qualifying child (less than age 17 and with a qualified social security number) as a dependent in your household, you are eligible for a $2,000 tax credit per child. There is a reduced $500 credit per qualifying child age 17 or older (up through age 23 as a full-time student or a disabled child.)
There is also a $500 potential credit for a qualifying relative. In order to receive the full credits described, MAGI needs to be below $400,000 for joint filers or below $200,000 for others. These credits are reduced or phased out gradually with MAGI above these amounts.
Trust and Estate tax brackets apply instead of individual tax rates. Read a more detailed article here.
Review contribution limits and income limits here.
|Trusts & Estates Income Tax Brackets|
|Not over $2,550||10% of the taxable income|
|Over $2,550 but not over $9,150||$255 plus 24% of the excess income over $2,550|
|Over $9,150 but not over $12,500||$1,839 plus 35% of the excess income over $9,150|
|Over $12,500||$3,011 plus 37% of the excess income over $12,500|
$15,000 per person, up from $14,000 in 2017
$11,200,000 per person, up from $5,540,000 in 2017
We hope this gives you a basic understanding of the changes made by the Tax Cut and Jobs Act. You may find that you want to talk with us or your CPA to learn how it will impact you. We look forward to the opportunity to serve you.
Please note that all the cuts described above are scheduled to revert to 2017 rules on January 1, 2026.
This information is believed to be accurate but should not be used as specific investment or tax advice. You should always consult your tax professional or other advisors before acting on the ideas presented here.