IRS updates inflation adjustments for new tax law

Register now

The Internal Revenue Service updated Friday the tax year 2018 annual inflation adjustments to reflect changes from the recent tax reform law.

The tax year 2018 adjustments are generally used on tax returns filed in 2019. The tax items affected by the Tax Cuts and Jobs Act for tax year 2018 that would be of the biggest interest to most taxpayers and tax professionals include the following dollar amounts:

• The standard deduction for married filing jointly increases to $24,000. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,000; for heads of households, $18,000.

• The TCJA eliminated the personal exemption, so for tax year 2018 it’s $0.

• The TCJA decreased tax rates for many taxpayers. The new tax rates are 10, 12, 22, 24, 32 and 35 percent, along with a top rate of 37 percent. For tax year 2018, the highest tax rate will apply to married individuals who file jointly and surviving spouses with taxable incomes of more than $600,000, to single taxpayers and heads of households with incomes topping $500,000, and to married taxpayers filing separately with incomes over $300,000.

• The new tax law eliminates the limitation for itemized deductions.

• The Alternative Minimum Tax exemption amount for tax year 2018 goes up a significant amount under the tax reform law. For tax year 2018, the exemption amount for single taxpayers is $70,300 and begins to phase out at $500,000, while the exemption amount for married couples filing jointly is $109,400 and starts to phase out at $1 million.

• For estates of any decedent who passed away in calendar year 2018, the basic exclusion amount is $11,180,000.

Certain items had minor adjustments. The new tax law has a different method for adjusting for inflation.

• For 2018, the foreign earned income exclusion will be $103,900.

• The maximum earned income credit amount will be $6,431 for taxpayers who have three or more qualifying children, for 2018. Other earned income credit amounts are spelled out in Revenue Procedure 2018-18.

• For tax year 2018, participants who have self-only coverage in a Medical Savings Account, the plan needs to have an annual deductible of no less than $2,300, but not more than $3,450. For self-only coverage, the maximum out-of-pocket expense amount is $4,550. For tax year 2018, participants with family coverage, the floor for the annual deductible is $4,550; however, the deductible cannot be more than $6,850. For family coverage, the out-of-pocket expense limit is $8,400 for tax year 2018. (Only the “$4,550” amount differs from what was in the IR-2017-178.)

Items unaffected by the Tax Cuts and Jobs Act

The dollar amounts for the items described below in the inflation adjustment news release issued last October are still unchanged under the new method for adjusting for inflation required by the TCJA:

• For tax year 2018, the annual exclusion for gifts is $15,000.

• For tax year 2018, the monthly limitation for the qualified transportation fringe benefit is $260, as is the monthly limit for qualified parking.

• For tax year 2018, the adjusted gross income amount used by joint filers to figure the reduction in the Lifetime Learning Credit is $114,000.

• For calendar year 2018, the dollar amount used to calculate the penalty for not maintaining minimum essential health coverage is $695.

The information released Friday by the IRS replaces IR-2017-178, which provided the inflation adjusted items under the law prior to enactment of the Tax Cuts and Jobs Act.

Revenue Procedure 2018-18 offers extra details on these and other inflation adjusted items affected by the recently enacted tax law. Also check out Revenue Procedure 2018-22.

For reprint and licensing requests for this article, click here.
Trump tax plan Tax planning Tax reform Tax deductions AMT Tax rates IRS