(Update: The Tax Jobs and Cuts Act of 2017 was signed into law by President Trump on December 22, 2017. Below are the rates and numbers as reflected in the final law as written. The IRS published the updated tables and numbers on March 5, 2018. You can find those here.)
With tax reform just around the corner (a vote is scheduled on the conference bill this week), many taxpayers are wondering what it means for 2018. You can read my take on what’s in the conference bill here, but for a deeper dive on some of the specific numbers that affect individual taxpayers, I’ve updated my 2018 tax brackets, standard deductions and other numbers below.
Tax Brackets and Tax Rates. As written, there are still seven (7) tax rates. They are: 10%, 12%, 22%, 24%, 32%, 35% and 37% (there is also a zero rate). Here’s how those break out by filing status:
And it isn’t just the federal estate tax exemption that will be modified. Tax rates for trusts and estates are slated to change, too:
Remember to pay attention to the progressive nature of the rates when you’re making comparisons – and don’t simply multiply your income by the top rate. For more on taxable income and marginal rates, check out this quick primer.
Standard Deduction Amounts. As written, the standard deduction amounts will increase to $12,000 for individuals, $18,000 for heads of household, and $24,000 for married couples filing jointly and surviving spouses.
- If you are age 65 or over, blind or disabled, you can tack on $1,300 to your standard deduction ($1,600 for unmarried taxpayers).
As written, there will be no personal exemptions for 2018.
Since there will be no personal exemption amounts, here’s your cheat sheet for figuring whether you need to file a return.
- For individual taxpayers, you will be required to file a tax return if your gross income for the taxable year is more than the standard deduction.
- For married taxpayers, you will be required to file a tax return if your gross income, when combined with your spouse’s gross income, is more than the standard deduction for a joint return, provided that you and your spouse lived in the same home; your spouse does not file a separate tax return; and neither you nor your spouse is a dependent of another taxpayer who has income other than earned income in excess of $500 (indexed for inflation).
The alternative minimum tax (AMT) exemption amounts are permanently adjusted for inflation. As written, the AMT exemption amounts will be follows:
Kiddie Tax. The kiddie tax applies to unearned income for children under the age of 19 and college students under the age of 24. Unearned income is income from sources other than wages and salary, like dividends and interest. As written, taxable income attributable to net unearned income will be taxed according to the brackets applicable to trusts and estates (you’ll see those posted above). With respect to earned income, the rules are the same as before.
Some additional tax credits and deductions were adjusted for 2018 or altered under the conference bill. Here’s a look at a few of the most popular:
- Child Tax Credit. As written, the child tax credit will be increased to $2,000 per qualifying child and will be refundable up to $1,400, subject to phaseouts. The bill also includes a temporary $500 nonrefundable credit for other qualifying dependents (for example, older adults). Phaseouts, which are not indexed for inflation, will begin with adjusted gross income of more than $400,000 for married taxpayers filing jointly and more than $200,000 for all other taxpayers.
- Earned Income Tax Credit (EITC). For 2018, the maximum EITC amount available is $6,444 for taxpayers filing jointly who have 3 or more qualifying children. The conference bill did not adjust these amounts. For more info, Rev. Proc. 2017-58 (downloads as a pdf) has a table providing maximum credit amounts for other categories, income thresholds, and phase-outs.
- Student Loan Interest Deduction. For 2018, the maximum amount that you can deduct for interest paid on student loans remains at $2,500. Phaseouts apply for taxpayers with modified adjusted gross income (MAGI) in excess of $65,000 ($135,000 for joint returns) and is completely phased out for taxpayers with modified adjusted gross income (MAGI) of $80,000 or more ($165,000 or more for joint returns). The conference bill did not repeal the deduction.
Two quick caveats:
- This is NOT yet law. Keep in mind that these numbers are based on the conference bill: The vote has not yet happened.
- These are not the tax rates and other numbers for the 2017 tax year. You’ll find the official 2017 tax rates – those you’ll use to file your tax return in 2018 – here.