Congress passed the Tax Cuts and Jobs Act (TCJA) on December 20, 2017. The goal of TCJA was to cut taxes for individuals and businesses, create jobs and stimulate the economy. The Internal Revenue Service recently updated the tax year 2018 annual inflation adjustments to reflect changes brought on by the TCJA to use on tax returns filed in 2019.
Tax Cuts and Jobs Act
- Standard deductions for single taxpayers and married individuals filing separately increased to $12,000. And standard deductions for heads of household increased to $18,000 and married filing jointly to $24,000.
- For tax year 2018, taxpayers personal and dependency exemptions were annulled.
- New tax rates for tax year 2018 are 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent. The highest rates will apply to married filing jointly and surviving spouses with income over $600,000. Next higher rates apply to single taxpayers and head of households over $500,000 and married filing separately over $300,000.
- The TCJA now eliminates limitations for itemized deductions.
The Tax Cuts and Jobs Act had a few items with minor adjustments after it passed in late 2017, these are listed below:
- The child tax credit amount increased to $2,000 per qualifying child from the previous $1,000. The maximum earned income credit amount for taxpayers reporting 3 or more qualifying children for tax year 2018 is $6,431.
- Taxpayers with self-only coverage plans in Medical Savings Accounts must meet a deductible no less than $2,300 but not more than $3,450 and maximum out-of-pocket expenses $4,550. For taxpayers with family coverage deductible can be no less than $4,550 and no more than $6,850 with out-of-pocket expense limit $8,400.
Items below remain unchanged under the new tax laws for tax year 2018:
- annual exclusion for gifts is $15,000
- monthly limitation for qualified transportation fringe benefit and qualified parking is $260
- the penalty for not maintaining minimum essential health coverage is $695 for calendar year 2018; for individuals, the shared responsibility payment mandate is repealed but will not go into effect until 2019