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.
Income Tax Brackets
Seven brackets remain. Income tiers and rates favor the taxpayer.
2017
Old Tax Brackets |
|
2018
New Tax Brackets Under TCJA |
| MARRIED FILING JOINTLY – 2017 |
|
MARRIED FILING JOINTLY – 2018 |
| Tax Brackets |
Marginal
Rate |
|
Tax Brackets |
Marginal
Rate |
| 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 |
| Tax Brackets |
Marginal
Rate |
|
Tax Brackets |
Marginal
Rate |
| 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% |
Deductions & Exemptions
|
2017 |
|
2018 |
|
|
Married
Filing Jointly |
Single |
|
Married
Filing Jointly |
Single |
Notes |
| Personal Exemptions |
$4,050 per dependent |
|
Eliminated |
1 |
| Standard Deduction |
$12,700 |
$6,350 |
|
$24,000 |
$12,000 |
2 |
| Itemized Deductions |
| 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.
Notes:
1 Exemptions go away but the expanded Child Tax Credit largely neutralizes the impact for most taxpayers. See below for details on the Child Tax Credit
2 The dramatic increase in the standard deduction is one of the most impactful positive changes in the tax bill (the lower marginal rates and more favorable brackets are the other most impactful positive change). Most taxpayers (approximately 90%) will take the standard deduction.
3 For charitable high earners, this will be very beneficial.
4 In 2019, the threshold reverts to 10% of AGI.
5 “Acquisition Indebtedness” is debt used to acquire, build or substantially improve your primary or secondary residence. Additional details and limits apply.
6 For taxpayers whose property and state taxes exceed $10,000, this may be the costliest provision in the new bill.
7 Starting in 2018, if you receive the “Right to Purchase” tickets to athletic events, your contribution for this right is not deductible.
8 Additional details and limits apply.
9 Includes tax preparation and investment advisory fees. |
Alternative Minimum Tax (AMT)
|
2017 |
|
2018 |
|
|
Married
Filing Jointly |
Single |
|
Married
Filing Jointly |
Single |
Notes |
| Alternative Minimum Tax |
Tax rates of 26% and 28% |
|
Tax rates of 26% and 28% |
|
| AMT Exemption |
$84,500 |
$54,300 |
|
$109,400 |
$70,300 |
1 |
| 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.
Notes:
1 Amount deducted from your Alternative Minimum Taxable Income (AMTI)
2 AMTI above these levels starts the phase-out of the AMT exemption (see above). You lose $0.25 of your exemption for every dollar your AMTI exceeds that threshold.
3 AMTI below these amounts taxed at 26% |
Capital Gains Tax Brackets
| Capital Gains Tax Brackets – Unchanged |
| Rate |
Married Filing Jointly
Taxable Income Over |
Single
Taxable Income Over |
| 0% |
$0 |
$0 |
| 15% |
$77,200 |
$38,600 |
| 20% |
$479,000 |
$425,800 |
Net Investment Income Tax (Medicare Surtax)
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.
Child Tax Credit
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.
529 Plans
- At the Federal level, you can now use $10,000 of 529 plan funds (per beneficiary/per year) to pay tuition for a public, private or religious elementary or secondary school. This limit is applied on a per-student, per-year basis. The new tax law has no impact on withdrawing funds for college qualified expenses.
- States must individually determine whether or not to incorporate this new elementary/secondary school exclusion into their tax laws. If no changes are made, we believe the exclusion will be allowable at the federal level and then added back at the state level.
Kiddie Tax
Trust and Estate tax brackets apply instead of individual tax rates. Read a more detailed article here.
IRA, Roth IRA, Simple IRA & 401k Plans
Review contribution limits and income limits here.
Trust & Estates New Tax Brackets
| Trusts & Estates Income Tax Brackets |
| Income |
Rate |
| 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 |
Gift Tax Exclusion
$15,000 per person, up from $14,000 in 2017
Estate Tax Exclusion
$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.
Related Articles
- Curious about how the Tax Cut and Jobs Act of 2017 (TCJA) will impact your tax bill? Click here to find out.
- To learn how you might maximize your deductions under the new TCJA click here.
- Read about the impact of the tax bill on your estate planning here.
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.
Who Gets a Tax Cut?
February 2, 2018Bragg Financial Sponsors PBS Program Trail of History
February 22, 2018The 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.
Income Tax Brackets
Seven brackets remain. Income tiers and rates favor the taxpayer.
Old Tax Brackets
New Tax Brackets Under TCJA
Rate
Rate
Rate
Rate
Deductions & Exemptions
Filing Jointly
Filing Jointly
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.
Notes:
1 Exemptions go away but the expanded Child Tax Credit largely neutralizes the impact for most taxpayers. See below for details on the Child Tax Credit
2 The dramatic increase in the standard deduction is one of the most impactful positive changes in the tax bill (the lower marginal rates and more favorable brackets are the other most impactful positive change). Most taxpayers (approximately 90%) will take the standard deduction.
3 For charitable high earners, this will be very beneficial.
4 In 2019, the threshold reverts to 10% of AGI.
5 “Acquisition Indebtedness” is debt used to acquire, build or substantially improve your primary or secondary residence. Additional details and limits apply.
6 For taxpayers whose property and state taxes exceed $10,000, this may be the costliest provision in the new bill.
7 Starting in 2018, if you receive the “Right to Purchase” tickets to athletic events, your contribution for this right is not deductible.
8 Additional details and limits apply.
9 Includes tax preparation and investment advisory fees.
Alternative Minimum Tax (AMT)
Filing Jointly
Filing Jointly
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.
Notes:
1 Amount deducted from your Alternative Minimum Taxable Income (AMTI)
2 AMTI above these levels starts the phase-out of the AMT exemption (see above). You lose $0.25 of your exemption for every dollar your AMTI exceeds that threshold.
3 AMTI below these amounts taxed at 26%
Capital Gains Tax Brackets
Taxable Income Over
Taxable Income Over
Net Investment Income Tax (Medicare Surtax)
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.
Child Tax Credit
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.
529 Plans
Kiddie Tax
Trust and Estate tax brackets apply instead of individual tax rates. Read a more detailed article here.
IRA, Roth IRA, Simple IRA & 401k Plans
Review contribution limits and income limits here.
Trust & Estates New Tax Brackets
Gift Tax Exclusion
$15,000 per person, up from $14,000 in 2017
Estate Tax Exclusion
$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.
Related Articles
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.
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