A Summary of The Tax Cut and Jobs Act of 2017

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.

Deductions & Exemptions

Alternative Minimum Tax (AMT)

Capital Gains Tax Brackets

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

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.