Kelly, I read your article in Forbes where you nicely detailed the changes in law. However, I am reviewing the IRS’s rules for filing 1040A (https://www.irs.gov/pub/irs-pdf/i1040gi.pdf page 48) and they still show the MFJ income limit at $110,000 not $400,000. What am I missing?
We’re in confusing times, for sure. Let me see if I can explain. The forms and publications you’ll find prominently displayed on the Internal Revenue Service (IRS) website are largely those for the 2017 tax year, meaning those you’ll use to file your tax return in 2018. The 2017 tax forms, including instructions, are not applicable to the 2018 tax year. The changes as a result of the new tax law (more on those here) largely go into effect in 2018, meaning that they’ll affect your income and expenses used to file your 2018 tax return in 2019.
It’s confusing because the calendar has flipped over to 2018 and some changes are happening to adjust for the new law (like changes to your 2018 withholding). At the same time, the new tax season, when you’ll file your 2017 tax return, is just around the corner. It can be challenging to keep the two separate.
Complicating matters is that the new law isn’t entirely consistent. There are two notable provisions for individual taxpayers that do not take effect in 2018:
First, medical expenses. Under tax reform, the 7.5% floor for medical expenses is back in place for two years beginning January 1, 2017: That means that it applies to the 2017 tax year. It’s called a “floor” because you can only deduct expenses over that percentage of your adjusted gross income (AGI). Let’s say your AGI is $40,000, and your medical expenses are $5,000. If you itemize, you can claim $2,000 as a deduction, or $5,000 in expenses less the floor (7.5% x $40,000 = $3,000). Again, the medical expenses provision is effective retroactively to the beginning of this year – so you’ll see this change on your 2017 and your 2018 tax returns.
Also not impacted in 2018? The healthcare mandate. I was asked:
Will you please explain the Obamacare mandate repeal as it applies for taxes to be filled for 2017?
Will the penalty be applicable for 2017 and need to be paid in 2018? People are confused and need to know when the mandate goes into effect. I was told it would be applied starting in 2019.
The repeal of the mandate takes effect in 2019 and affects the return you’ll file in 2020. The specific language, found at section 11081 of the new law, says, “The provision is effective with respect to health coverage status for months beginning after December 31, 2018.” That means that the mandate is still in place for the 2017 and 2018 tax years.
Under the law, you’re required to demonstrate that you have health coverage. Taxpayers that don’t have coverage must claim a waiver or exemption, or be subject to a penalty. If you failed to tick the box in past years, the IRS would still accept and process tax returns; that is no longer the case (for more, click here). For the 2017 tax year, the penalty, which is payable in 2018, is equal to 2.5% of your adjusted gross income (AGI), or $695 per adult and $347.50 per child, up to a maximum of $2,085, whichever is higher.
To recap, most of the provisions, including the rates that were good law in 2017, are still good law for purposes of filing your 2017 tax return in 2018.
Also, most of the new provisions of the new tax law, including the rates, go into effect as of January 1, 2018, and will affect the 2018 tax return that you’ll file in 2019.