What The 2018 Tax Brackets, Standard Deductions, And More Look Like Under Tax Reform

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:

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 over age 65, 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. – THIS IS A HUGE TAX HIKE

How does impact you. If in 2016 your adjusted gross income was $50,000 (as shown in example above)  and you filed Married Filing Joint, your tax liability for the year would be $5,619. The tax exemption of (4 dependents each worth $3,950 0r $15,800) has already been deducted to reach your taxable income. This is an effective Tax Savings of 1.89%, or so it seems.

Now if they eliminate the Personal Exemption, the math works against you. In this new scenario, you would be paying tax of an additional $15,800 of table income, that you previously deducted under 2016 rules. That means your taxable income (or AGI) would be $50,000+15,800=$65,800) for a total tax income of $65,800 and $10,415.00 or tax hike of 15.8%. This is still under a lot of debate in the senate, we’ll just have to wait and see.

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,  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:

1. This is NOT yet law. Keep in mind that these numbers are based on the conference bill: The vote has not yet happened.
2. These are notthe 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.
3. Winners here are corporations with net earnings in excess of $10 Million who’s tax break bracket will drop from 35% down to 21%.

I have hundreds of clients, none will ever see a dime in the corporate tax rates. Congratulations to the 1%, they just got richer.