Given the number of updates, compromises, and ping-pongs between House and Senate that the tax reform bill endured, it's no surprise if you're having trouble keeping track of which changes survived. Here's a cheat sheet to catch you up on some of the most important tax code changes that affect individual taxpayers.
1. New tax brackets
There are still seven different income tax brackets, but rates and income thresholds for those brackets have changed starting in 2018. The new income tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Tax brackets continue to be marginal, meaning that you don't pay the top rate you qualify for on your entire income, just the chunk of income that falls within the thresholds for that particular bracket. For example, if you're single and you have $50,000 in taxable income in 2018, you'll pay 10% tax on the first $9,525 of income; 12% tax on the income between $9,525 and $38,700; and 22% tax on the rest.
2. Standard deductions rise
Taxpayers can still choose between claiming a standard deduction or itemizing their deductions, but the standard deduction is more likely to win out starting in 2018. That's because the standard deductions have nearly doubled to $12,000 for single filers, $18,000 for heads of household, and $24,000 for married filing jointly taxpayers. On the other hand, the personal exemption (which allowed taxpayers to deduct a set amount for themselves, their spouses, and each dependent) has been repealed through 2025.
3. Itemized deductions take a hit
Another reason you're more likely to end up using the standard deduction in the future is that a number of important itemized deductions were repealed or capped. The state and local taxes deduction was capped at $10,000; the mortgage interest deduction was capped at loans of no more than $750,000; the home equity loan interest deduction was repealed; and the casualty and loss reduction will now be limited to presidentially declared disasters. All the miscellaneous itemized deductions subject to the 2% adjusted gross income (AGI) floor were repealed. Pretty much the only itemized deduction that improved was the medical expense deduction: the current 10% AGI floor was changed to a 7.5% floor for 2017 and 2018 only.
4. Child tax credit doubles
Parents may no longer be able to claim personal exemptions for their children, but at least they'll be able to claim a bigger child tax credit. The tax reform bill doubled the child tax credit from $1,000 per child to $2,000 per child, $1,400 of which is refundable (meaning that taxpayers can claim this much over and above their tax bill for the year, generating a refund). The child tax credit income threshold has increased as well; this credit begins to phase out at an annual income of $200,000 for single parents and $400,000 for married filing jointly parents.
Taxpayers with non-child dependents get a bone thrown to them as well in the form of a new, nonrefundable $500 tax credit for each non-child dependent. This new credit applies to children over the age of 17, elderly parents, and adult children with a disability.
When to expect these changes
Most of the provisions in the tax reform bill come into effect during the 2018 tax year. That means that when you're preparing your 2017 taxes this April, you won't apply these changes (with the exception of the new 7.5% AGI floor for medical expense deductions, which starts right away). However, when you do your 2018 taxes in early 2019, these new tax provisions will kick in on the return.
The tax reform bill instituted huge changes to the tax code, including some of the most fundamental aspects of preparing your tax return. So when you do your 2018 tax return next year, double- and triple-check that you applied all these new rules correctly. Taking a little extra time over your tax return for the first year that these changes apply can help reduce the odds that you'll get a visit from an IRS auditor a few months down the line.
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