The IRS has unveiled the tax year 2018 annual inflation adjustments for more than 50 tax provisions, including the tax rate schedules and other tax changes.
The adjustments include:
- The standard deduction for married filing jointly rises to $13,000 for tax year 2018, up $300 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,500 in 2018, up from $6,350 in 2017. For heads of households, the standard deduction will be $9,550, up from $9,350 for tax year 2017.
- The personal exemption for tax year 2018 rises to $4,150, an increase of $100. The exemption is subject to a phase-out that begins with adjusted gross incomes of $266,700 ($320,000 for married couples filing jointly). It phases out completely at $389,200 ($442,500 for married couples filing jointly.)
- The 39.6 percent tax rate affects single taxpayers whose income exceeds $426,700 ($480,050 for married taxpayers filing jointly), up from $418,400 and $470,700, respectively. The other marginal rates and the related income tax thresholds for tax year 2018 are described in Revenue Procedure 2017-58.
Among other changes, the limitation for itemized deductions to be claimed on tax year 2018 returns of individuals will begin with incomes of $266,700 or more ($320,000 for married couples filing jointly).
The Alternative Minimum Tax exemption is $55,400 and begins to phase out at $123,100 ($86,200 for married couples filing jointly for whom the exemption begins to phase out at $164,100). The 2017 exemption amount was $54,300 ($84,500 for married couples filing jointly). For tax year 2018, the 28 percent rate applies to taxpayers with taxable incomes above $191,500 ($95,750 for married individuals filing separately).
The maximum Earned Income Tax Credit is $6,444 for taxpayers filing jointly who have three or more qualifying children, up from a total of $6,318 for tax year 2017. (The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.)
The monthly limitation for the qualified transportation fringe benefit is $260, as is the monthly limitation for qualified parking.
For calendar year 2018, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage remains $695.
For tax year 2018, participants who have self-only coverage in a medical savings account, the plan must have an annual deductible that is not less than $2,300, an increase of $50 from tax year 2017, but not more than $3,450, an increase of $100 from tax year 2017. For self-only coverage, the maximum out-of-pocket expense amount is $4,600, up $100 from 2017. For participants with family coverage, the floor for the annual deductible is $4,600, up from $4,500 in 2017; the deductible cannot be more than $6,850, up $100 from the limit for tax year 2017. For family coverage, the out-of-pocket expense limit is $8,400 for tax year 2018, an increase of $150 from tax year 2017.
The AGI used by joint filers to determine the reduction in the Lifetime Learning Credit is $114,000, up from $112,000 for tax year 2017.
For tax year 2018, the foreign earned income exclusion is $104,100, up from $102,100 for tax year 2017.
Estates of decedents who die during 2018 have a basic exclusion amount of $5.6 million, up from a total of $5.49 million for estates of decedents who died in 2017.
The annual exclusion for gifts increased to $15,000, an increase of $1,000 from the exclusion for tax year 2017.
The tax year 2018 adjustments generally are used on tax returns filed in 2019.
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