(this Act will apply to the 2018 returns filed in 2019)
The Act keeps the seven income tax brackets but lowers tax rates. Employees will see changes reflected in their withholding in February 2018 paychecks. These rates revert to the 2017 rates in 2026.
The Act creates the following chart. The income levels will rise each year with inflation. But they will rise more slowly than in the past because the Act uses the chained consumer price index. Over time, that will move more people into higher tax brackets.
Income Tax Rate
Income Levels for Those Filing As:
Corporate Tax Rate
21 percent, beginning in 2018
Corporate Alternative Minimum Tax
Individual Alternative Minimum Tax
Increase the exemption to $70,300 for singles and $109,400 for joint filers. Increase the phase-out threshold to $500,000 for singles and $1 million for joint filers. The higher limits would expire on Jan. 1, 2026.
Standard Deduction and Personal Exemptions
Current law: $6,350 standard deduction for single taxpayers and $12,700 for married couples, filing jointly. Personal exemptions of $4,050 allowed for each family member.
New law: $12,000 standard deduction for single taxpayer and $24,000 for married couples, filing jointly. Personal exemptions repealed.
Businesses could fully and immediately deduct the cost of certain equipment purchased after Sept. 27, 2017 and before Jan. 1, 2023. After that, the percentage of cost that could be immediately deducted would gradually phase down. Increases the section 179 expensing cap from $500,000 to $1 million.
U.S. companies’ overseas income held as cash would be subject to a 15.5 percent rate, while non-cash holdings would face an 8 percent rate. Companies can make the payments in eight annual installments.
Current law: Pass-through businesses, which include partnerships, limited liability companies, S corporations and sole proprietorships, pass their income to their owners, who pay tax at their individual rates.
New law: Owners of Pass-through entities (Non-Service Organizations) may be eligible to deduct 20 percent of their qualified business income. If the owner’s taxable income is below $315,000 for married filing joint or $157,500 for individuals the deduction is 20%. If the owner’s income exceeds the threshold the deduction is the lesser of 20% of its business income or 50% of the total wages paid by the business to its employees.
Owners of Pass-through service organizations are able to deduct 20% of qualified business income if the owner’s taxable income is below $315,000 for married filing joint or $157,000 for single individuals. The 20% deduction is completely phased out over the owners next $100,000 of income over the threshold for married filing joint and $50,000 for single individuals.
Affordable Care Act Individual Mandate
Current law: An individual who fails to buy health insurance must pay penalties of $695 (higher for families) or 2.5 percent of their household income—whichever is higher, but capped at the national average cost of the most basic, low-premium, high-deductible plan.
Repeal of the penalties for 2019.
Individual State and Local Tax Deductions
Current law: Individuals can deduct the state and local taxes they pay, but the value is subject to certain limits for high earners.
New law: Individuals can deduct no more than $10,000 worth of deductions, which could include a combination of property taxes and either sales or income taxes.
Mortgage Interest Deduction
Current law: Deductible mortgage interest is capped at loans of $1 million.
New law: Deductible mortgage interest for new purchases of first or second homes would be capped at loans of $750,000 starting Jan. 1, 2018.
Medical Expense Deduction
Current law: Qualified medical expenses that exceed 10 percent of the taxpayer’s adjusted gross income are deductible.
New law: Reduce the threshold to 7.5 percent of AGI for 2017 and 2018.
Child Tax Credit
Current law: A $1,000 credit for each child under 17. The credit begins phasing out for couples earning more than $110,000. The credit is at least partially refundable to qualified taxpayers who earned more than $3,000.
New law: Doubles the credit to $2,000 and provide it for each child under 17 through year 2025. Raise the phase-out amount to $400,000 married filing joint, and cap the refundable portion at $1,400 per qualified child in 2018.
Current law: Applies a 40 percent levy on estates worth more than $5.49 million for individuals and $10.98 million for couples.
New law: Double the thresholds so the levy applies to fewer estates. The higher thresholds would sunset in 2026.