The Tax Cuts and Jobs Act is the largest piece of tax reform legislation in 30 years and was signed into law on Dec. 22, 2017. For most taxpayers, these tax changes impact tax year 2018 and not tax year 2017. Overall, the changes associated with this act will lower taxes for individuals and small businesses.
The following infographic provides a glimpse at the impact for a typical family of four before and after the tax changes are applied. This is a mock scenario for you to review and share with your clients, whose results may differ.
Highlights of Changes Applicable to Families
Lower Tax Rates
There are seven tax rates under the new law: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Here is the tax rate schedule for joint filers:
Standard Deduction Increased
The standard deduction for taxpayers not itemizing deductions on Schedule A is increased to $24,000 married filing joint, $18,000 head of household and $12,000 for other filing statuses. For taxpayers who are itemizing deductions, there is no longer a phase-out for high-income earners.
Personal Exemption Repealed
Under prior law, the personal exemption was $4,050. This exemption has been repealed under the Tax Cuts and Jobs Act.
Child Tax Credit
The child tax credit for children under 17 years old is doubled from $1,000 to $2,000, and $1,400 of the credit is refundable and applies when there is no tax liability. The income levels when the credit phases out are increased to $400,000 for joint filers and $200,000 for others. A $500 non-refundable credit is available for dependents who are not your children. A Social Security number for the child is now required to receive the credit.
State and Local Tax Deduction
The itemized deduction claimed on Schedule A for state and local taxes is now limited to $10,000 ($5,000 for married filing separately) on the aggregate of the following items: (no limit under prior law):
- State and local property taxes
- State and local income taxes OR sales taxes
Mortgage and Home Equity Debt
The itemized deduction claimed on Schedule A for mortgage interest is now limited to underlying debt of up to $750,000 ($375,000 for married filing separately). The prior limit of $1 million continues to apply for 1) debt incurred on or before Dec. 15, 2017, and 2) refinancing existing debt that was incurred before Dec. 31, 2017. There is no longer a deduction for interest on home equity debt.
Tax Deductions That Are Going Away
- Moving expenses (the exclusion for reimbursements also goes away), except for members of the Armed Forces on active duty.
- Miscellaneous itemized deductions subject to the 2 percent income limit, such as job expenses and investment expenses.
- Personal casualty and theft losses, unless they were incurred in a federally declared disaster.
For divorce or separation agreements executed after Dec. 31, 2018, alimony and separate maintenance payments are not deductible by the payer and not included in income of the recipient. This was not the case under prior law.
Affordable Care Act Mandate
Individuals who are not covered by insurance or an exemption will no longer have to pay a penalty beginning in 2019.
Access the latest information about tax reform, including a new set of live webinars covering a variety of related topics, at the Intuit® ProConnect™ Tax Reform Resource Center.