This week Congress passed the new tax reform bill — one of the largest pieces of tax reform legislation in more than three decades. The bill is expected to reduce taxes for individuals and businesses, simplify the tax code and affect the taxes of most taxpayers, but one key point to keep in mind is that for most people, the bill doesn’t affect the 2017 taxes that you will be filing soon (the ones you file in 2018).
Many folks are wondering what’s in the final bill and how it might affect them in the future when the changes fully kick in. Here’s a recap of some of the major tax provisions in the new tax bill and how they may impact your taxes when you file in 2019.
[Read: 10 End-of-Year Tax Tips for a Stress-Free Holiday Season.]
Lower Tax Rates and Changed Income Ranges
The tax brackets and the income thresholds at which these brackets kick in have changed. A majority of taxpayers will see a reduction in their tax rates. The bill retains the seven tax brackets found in current law, but lowers a number of the tax rates. It also changes the income thresholds at which the rates apply.
As your tax rate might change for 2018, make sure you adjust your withholding on your W-4 accordingly to get the reduced taxes.
Increased Standard Deduction
Another change for taxpayers is the increase of the standard deduction. It nearly doubles from $6,350 for 2017 taxes to $12,000 for 2018 taxes (the ones you file in 2019) for single filers, and married couples filing jointly will see an increase from $12,700 to $24,000. These increases mean that fewer people will have to itemize. Today, roughly 30 percent of taxpayers itemize, and under the new law, more taxpayers will be able to take the standard deduction.
For example, a millennial single taxpayer making $50,000 who takes the standard deduction will see a tax savings of about $1,497 due to the increased standard deduction.
Increased Child Tax Credit
There are some big changes coming for families with children. The child tax credit is doubled from $1,000 per child to $2,000, and the amount that is refundable grows from $1,100 to $1,400. The bill also adds a new, nonrefundable credit of $500 for dependents other than children. Finally, it raises the income threshold at which these benefits phase out from $110,000 for a married couple to $400,000.
[Read: How to Find a Good Tax Accountant.]
State and Local Taxes/Home Mortgages
People will also see changes in state and local property tax (SALT) deduction. In the new bill, taxpayers can claim the aggregate of state and local property taxes capped at $10,000. The bill also caps the amount of mortgage indebtedness on new home purchases on which interest can be deducted at $750,000, down from $1 million in current law.
Other notable changes:
— Alternative minimum tax. The bill eases the burden of the individual alternative minimum tax (AMT) by raising the income exempted from $84,500 adjusted for inflation to $109,400 married filing jointly, and from $54,300 adjusted for inflation to $70,300 for single taxpayers, so fewer taxpayers will pay it.
— Personal and dependent exemptions. The bill eliminates the personal and dependent exemptions per taxpayer and dependent, which is presently $4,050 each for 2017.
— Health care. The bill eliminates the tax penalty for individuals without health insurance. It also temporarily lowers the floor above which out-of-pocket medical expenses can be deducted from the current law floor of 10 percent to 7.5 percent for 2017 and 2018, so for 2017 and 2018, you can deduct medical expenses that are more than 7.5 percent of your adjusted gross income as opposed to the higher 10 percent.
— Earned income tax credit. The bill maintains the credit for low- to middle-income wage earners, which can be over $6,000 credit for a family with three kids.
[Read: 5 Scary Tax-Filing Mistakes That Can Haunt You.]
A reminder that the majority of these tax changes are for 2018 taxes, which you file in 2019, and most people won’t see changes during this upcoming tax season.
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Tax Reform Is Here: What It Means for Your Taxes originally appeared on usnews.com
