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IRS reminds taxpayer of key inflation adjustments under Tax Cuts and Jobs Act

April 16, 2018

IRS has reminded taxpayers of the revised 2018 annual inflation adjustments under the Tax Cuts and Jobs Act (TCJA, P.L. 115-97, 12/22/2017) that are of the greatest interest to most taxpayers. IRS noted that the tax year 2018 adjustments are generally used on tax returns filed in 2019.

Background. Under the TCJA, for tax years beginning after Dec. 31, 2017, dollar amounts that were previously indexed using Consumer Price Index for All Urban Consumers (CPI-U) were instead indexed using Chained Consumer Price Index for All Urban Consumers (C-CPI-U, i.e., so-called “chained CPI”). IRS recalculated its previously released 2018 figures to take account of the new inflation measure and to reflect other changes made by TCJA. For greater detail on these and other inflation adjusted items affected by TCJA, see  2017 Tax Reform: Revised inflation-adjusted and other 2018 amounts for individuals (3/8/2018), 2017 Tax Reform: Revised inflation-adjusted 2018 figures for health, charitable, and other specialty items (3/8/2018), 2017 Tax Reform: Revised inflation-adjusted 2018 figures for transfer tax and foreign items (3/8/2018).

Reminder. In IR 2018-93, 4/13/2018, IRS notes some of the more significant figures affected by the TCJA. They include:

Standard deduction. For 2018, the standard deduction for married filing jointly and surviving spouses rises to $24,000 (up from $12,700 for 2017). For single taxpayers and married individuals filing separately, the standard deduction for 2018 rises to $12,000 (up from $6,350 for 2017); for heads of households for 2018, the standard deduction is $18,000 (up from $9,350 for 2017).

Personal exemption. The personal exemption for tax year 2018 is $0 (down from $4,050 for 2017).

Tax rates for individuals. For 2018, the tax rates are: 10%, 12%, 22%, 24%, 32%, 35%, and a top rate of 37%. For tax year 2018, the highest tax rate will apply to married individuals filing jointly and surviving spouses with taxable incomes over $600,000, to single taxpayers and heads of households with incomes over $500,000, and to married taxpayers filing separately with incomes over $300,000. For 2017, individual tax rates were: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. For tax year 2017, the highest tax rate applied to married individuals filing jointly and surviving spouses with taxable incomes over $470,700, to single taxpayers with incomes over $418,400, for heads of households with incomes over $444,550, and to married taxpayers filing separately with incomes over $235,350.

Limitation for itemized deductions. For 2018, the limitation for itemized deductions is eliminated. For 2017, the allowable amount of itemized deductions was reduced if adjusted gross income was more than $313,800 for married filing jointly and surviving spouses, $287,650 for head of household, $261,500 for single individuals (other than heads of households and surviving spouses), and $156,900 for married filing separately.

Alternative minimum tax (AMT) exemption amount. For tax year 2018, the AMT exemption amount for single taxpayers is $70,300 and begins to phase out at $500,000, and the exemption amount for married couples filing jointly is $109,400 and begins to phase out at $1 million. For 2017, the AMT exemption amounts were $84,500 for joint returns or surviving spouses, $54,300 for single individuals (other than surviving spouses), and $42,250 for married individuals filing separate returns. For 2017, the amounts used to determine the phaseout of the exemption amounts were $160,900 for joint returns or surviving spouses, $120,700 for single individuals (other than surviving spouses), and $80,450 for married filing separately.

Earned income credit. For 2018 the maximum amount of the earned income credit is $3,461 for taxpayers with one child, $5,716 for taxpayers with two children, and $6,431 for taxpayers with three or more qualifying children. It is $519 for taxpayers with no children. For 2017, the corresponding amounts were $3,400, $5,616, $6,318, and $510.

Medical Saving Account (MSA). For Archer medical savings account (MSA) purposes, in 2018, a “high deductible health plan” is a health plan:

…with an annual deductible of at least $2,300 (up from $2,250 for 2017) and not more than $3,450 (up from $3,350 for 2017), in the case of self-only coverage; and

…with an annual deductible of at least $4,550 (up from $4,500 for 2017) and not more than $6,850 (up from $6,750 for 2017), in the case of family coverage; and

…under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits doesn’t exceed: $4,550 (up from $4,500 for 2017) for self-only coverage; and  $8,400 (up from $8,250 for 2017) for family coverage.

IR 2018-93, 4/13/2018

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