What You Need to Know About the Tax Reform: Individual Updates

The Tax Cuts and Jobs Act of 2017 is the largest tax reform legislation in 30 years. Below, you will find the significant tax provisions that will impact individuals.

If you would like to download a copy of this summary, please visit here: Tax Cuts and Jobs Act of 2017 Summary

Tax Rates and Income Brackets Changed

There will continue to be seven individual tax rates but there have been changes to the rates and brackets. The individual rates are temporary and for tax years 2018 through 2025. The individual provisions are effective January 1, 2018 and will sunset after 2025.

Single Taxpayers

2018 Tax Rate Income
10% $0 – $9,525
12% $9,526 – $38,700
22% $38,701 – $82,500
24% $82,501 – $157,500
32% $157,501 – $200,000
35% $200,001 – $500,000
37% $500,001 and up

Married Filing Joint

2018 Tax Rate Income
10% $0 – $19,050
12% $19,051 – $77,400
22% $77,401 – $165,000
24% $165,001 – $315,000
32% $315,001 – $400,000
35% $400,001 – $600,000
37% $600,001 and up

To view the Head of Household and Estates and Trusts updated tax rates, download our tax summary today: Tax Cuts and Jobs Act of 2017 Summary

Capital Gains and Qualified Dividends: Rates on capital gains and qualified dividends have been retained, but the income levels have changed.

For 2018, the 15% preferential rate starts at $77,200 for married filing joint; $51,700 for head of household; $38,600 for single filers and $2,600 for trusts and estates.

For 2018, the 20% preferential rate starts at $479,000 for married filing joint; $452,400 for head of household; $425,800 for single filers and $12,700 for trusts and estates.

Kiddie Tax: A child’s net unearned income in excess of $2,100 will be taxed using trust and estate tax rates and brackets. Previously, the child’s unearned income was taxed at the higher of the parents’ tax rates or the child’s tax rate.

Alternative Minimum Tax (AMT): AMT has been retained, but the exemption increased to $109,400 for joint returns and surviving spouses; $70,300 for single taxpayers and $54,700 for married taxpayers filing separately. The phase-out of the AMT exemption starts at $1 million for joint returns and surviving spouses and $500,000 for all other taxpayers.

Read more about the Alternative Minimum Tax Changes >>

Standard Deduction: The standard deduction was increased to $24,000 for joint filers; $12,000 for individual filers and $18,000 for head of household.  These amounts will be adjusted for inflation for tax years beginning after 2018. No changes were made to the current law’s additional standard deduction for the elderly and blind.

Personal Exemptions: All personal exemptions have been suspended and the exemption amount reduced to zero for tax years 2018 through 2025.

Child Tax Credit: The credits are increased from $1,000 to $2,000 per qualifying child under the age of 17.  There is a $500 non-refundable credit for certain non-child dependents.

The refundable portion of the credit is increased from $1,000 to $1,400.  The threshold for claiming the credit is increased from $110,000 to $400,000 for joint filers and from $75,000 to $200,000 for all other filers.

Itemized Deductions: Many itemized deductions have been restricted or eliminated.

  • Medical Expenses: For tax years beginning after December 31, 2016 and ending before January 1, 2019, the medical expense deduction floor is reduced to 7.5% of adjusted gross income (AGI).
  • State and Local Taxes (SALT): Individual taxpayers may claim an itemized deduction of up to $10,000 for the aggregate of state and local property taxes and state and local income taxes (or state and local sales taxes in lieu of income taxes).
    • State and local property taxes and state and local sales taxes that are paid or accrued in carrying on a trade or business are deductible on Schedules C, E or F.
    • State and local income taxes that are paid or accrued in carrying on a trade or business are not allowed as a deduction on Schedules C, E or F.
  • Mortgage and Home Equity Interest: For any indebtedness incurred after December 15, 2017, interest would only be deductible on payments applicable to $750,000 of acquisition on indebtedness. This limitation continues to be based upon a principal residence and one other residence.For debt incurred prior to or on December 15, 2017, the $1 million limitation remains. Debt refinanced after December 15, 2017 can maintain its “grandfathered” status to the extent the amount of debt does not exceed the amount refinanced.

    Deduction for interest on home equity indebtedness is generally suspended for tax years 2018 – 2025. However, the interest may be deductible if the home equity indebtedness is used to buy, build or substantially improve the home that secures the loan.

  • Charitable Contributions: The AGI limitation on cash contributions is increased from 50% to 60%.
    • For contributions made in tax years beginning after December 31, 2017, a charitable deduction is not allowed for any payment to an institution of higher education in exchange for which the payor receives the right to purchase tickets or seating at an athletic event. Prior to the Act, an 80% deduction was allowed.
  • Personal Casualty and Theft Loss: Deductions are suspended, except for personal casualty losses incurred in a federally-declared disaster.
  • Miscellaneous Itemized Deductions: All miscellaneous itemized deductions that are subject to the 2% floor are suspended for the 2018 – 2025 tax years, including unreimbursed employee business expenses, tax preparation fees, investment fees, safe deposit box fees and other expenses subject to the 2% floor.
  • Gambling Expenses: The gambling loss limitation has been modified. All deductions for expenses incurred in carrying out wagering transactions, and not just gambling losses, are now limited to the extent of gambling winnings.
  • Overall “Pease” Limitation: Under pre-reform law, the total itemized deductions were limited for certain upper-income taxpayers. This overall limitation on itemized deductions is suspended for the 2018 – 2025 tax years.

Moving Expenses: The deduction for moving expenses incurred in connection with starting a new job is generally suspended. Exclusion of qualified moving expense reimbursements from gross income is also generally suspended. Both of these provisions are still available for active duty members of the Armed Forces, who move pursuant to a military order.

Retirement: Conversion from traditional IRA to Roth IRA is permitted. However, starting with conversions done in 2018 and onward, the ability to re-characterize that conversion back to a traditional IRA is no longer permitted.

Section 529 Education Savings Plan: For distributions after December 31, 2017, the rules changed to allow distributions of up to $10,000 annually for tuition expenses incurred in connection with enrollment or attendance of a student at a public, private or religious elementary or secondary school. This provision does not sunset.

Teacher Expenses: The $250 deduction for K through 12th grade teachers who spend their own money on classroom supplies has been retained.

Student Loan Discharge: Income resulting from the discharge of certain student debt on account of death or total and permanent disability of the student are excluded from taxable income.

Alimony Payments: Changes have been made to the tax treatment of alimony that will take effect for divorces and legal separations after 2018. These changes are permanent and will not sunset.

  • Pre-Reform: Alimony payments are generally tax deductible for the payor and included in the income of the payee unless designated otherwise in the divorce or separation agreement.
  • Tax Reform: Alimony payments will not be deductible by the payor and not included in income of the payee for any divorce or separation agreement executed after December 31, 2018.
    • Agreements executed on or before December 31, 2018 will be grandfathered under the pre-reform rules, but can be modified to expressly provide that the new tax reform rules apply if modified after December 31, 2018.

Estate and Gift Tax Exemptions: The federal estate and gift tax unified credit basic exclusion amount is increased to $10 million (adjusted for inflation the 2018 exemption will be approximately $11.2 million), effective for decedents dying and gifts made after 2017 and before 2026 (2018 – 2025 tax years).

For decedents dying and gifts made before 2018 and after 2025, the exclusion amount is $5 million, adjusted for inflation ($5.49 million in 2017).

The annual gift tax exclusion is $15,000 for 2018 ($14,000 in 2017).

Affordable Care Act (ACA) Individual Mandate: ACA requires a penalty for individuals who were not covered by a health plan. For months beginning after December 31, 2018, this penalty is reduced to zero. The penalty reduction to zero is permanent.