Berntson Porter Coronavirus Resource Center Details

Newsletters

LIKE WHAT YOU READ? Share this article :

Tax Reform Series: Highlights for Individual Taxpayers

|

The December 22 Tax Cuts and Jobs Act contained major tax changes and reform affecting both businesses and individuals.

The following is a summary of tax reform changes for individuals. For Berntson Porter’s White Paper on the full impact of the new tax legislation, click here.

The recent Tax Cuts and Jobs Act (TCJA) contains many provisions that may have a significant impact on individual taxpayers.   The provisions pertaining to individuals generally take effect in 2018 and sunset in 2025, pending further action from Congress. Below is a summary of tax reform changes for individuals:

Ordinary Income Rates – Reduction in the seven ordinary income brackets (see table for new rates):

Individual Rates
(Married Filing Jointly)
10%      $0 – $19,050

12%      $19,051 – $77,400

22%      $77,401 – $165,000

24%      $165,001 – $315,000

32%      $315,001 – $400,000

35%      $400,001 – $600,000

37%      $600,001 +

Individual Rates (Single)
10%      $0 – $9,525

12%      $9,526 – $38,700

22%      $38,701 – $82,500

24%      $82,501 – $157,500

32%      $157,501 – $200,000

35%      $200,001 – $500,000

37%      $500,001 +

 

Personal Exemption and Standard Deductions – The deduction for personal exemptions is suspended until 2025. To alleviate the tax impact, the standard deduction is now $24,000 for joint filers, $12,000 for single filers, and $18,000 for those claiming head of household.

Alternative Minimum Tax (AMT) – The phase out threshold for the AMT exemption has been increased to $1,000,000 for joint filers and $500,000 for single filers. The exemption amount was also temporarily increased to $109,400 for joint filers and $70,300 for single filers.

Child Tax Credit – The credit is now $2,000, with up to $1,400 being fully refundable. The credit phases out starting at an income threshold of $400,000 for married taxpayers filing jointly and $200,000 for other filers.

Alimony Deductions – For divorce or separation agreements entered into after 12/31/2018, payments of alimony or separate maintenance will no longer be deductible. The payments will be treated similarly to child support and will not be taxable to the recipient. Existing agreements are grandfathered in and will continue to be deductible for the payor and taxable to the recipient.

Kiddie Tax – The tax on children’s investment income, known as the “Kiddie Tax,” was simplified and is no longer dependent on the parents’ income but will be taxed at the rates applicable to estates and trusts.

Roth IRA conversion and re-characterization – Under the old law, a taxpayer could re-characterize a Roth IRA conversion up until the extended due date of the return. The rule allowing the re-characterization of a converted Roth IRA back to a traditional IRA has been repealed beginning in 2018.

529 Plans – A maximum of $10,000 of §529 college savings plan withdrawals can now be used for K-12 tuition.

Individual Mandate – The individual mandate for health insurance was repealed beginning with the 2019 tax year.

Your team at Berntson Porter looks forward to working with you on this historic change to our tax system. If you have any questions, please contact your tax professional at Berntson Porter & Company, PLLC at 425-454-7990.