What did the Trump Administration tax changes do?
Unless you’ve been living under a rock, you’ve heard that there was a new tax bill that was passed by the Trump administration. And while the tax bill has been the topic of lengthy discussion and debate, few people can point to how it will affect them personally during this tax season.
Here are the main points you need to know:
Tax credits and more: One of the most significant changes is the doubling of the child tax credit. Because it was never adjusted for inflation, the credit is now up from $1,000 to $2,000. In addition, $1,400 of that is refundable, whereas before it was just a deduction. There is also a new $500 credit if you support a non-child dependent, such as an elderly parent or child over 17.
Income Tax Rates: The current structure of seven individual income tax brackets remains intact, but in most cases the rate is lowered: the top rate falls from 39.6% to 37%, while the 33% bracket falls to 32%, the 28% bracket to 24%, the 25% bracket to 22%, and the 15% bracket to 12%. The lowest bracket is still 10%, and the 35% bracket is also unchanged.
These are temporary changes and will be expiring after 2025. The IRS released new withholding brackets reflecting changes to the personal income tax schedule, which employers began using on February 15, 2018.
Standard Deduction: The law raises the standard deduction to $24,000 for married couples filing jointly in 2018 (from $12,700), to $12,000 for single filers (from $6,300), and to $18,000 for heads of household (from $9,550). These changes also expire after 2025.
Personal Exemption: The law suspended the personal exemption, which was $4,150, through 2025.
Healthcare Mandate: Another notable and contentious change is that the law ends the individual mandate, a provision of the Affordable Care Act. The individual mandate dictated that there would be tax penalties for those who do not purchase health insurance from the marketplace or from their employers.
Family Credits and Deductions: The law temporarily raises the child tax credit to $2,000, with the first $1,400 refundable, and creates a non-refundable $500 credit for non-child dependents. The child credit can only be claimed if the taxpayer provides the child's Social Security number. (This requirement does not apply to the $500 credit.) Qualifying children must be younger than 17. The child credit begins to phase out when adjusted gross income exceeds $400,000 (for married couples filing jointly, not indexed to inflation). Under current law, phaseout begins at $110,000. These changes expire in 2025.