Wolters Kluwer Tax & Accounting released its estimates Monday of tax bracket ranges and other inflation-adjusted tax figures, including the standard deduction and personal exemption level, predicting the biggest tax savings in 11 years no matter what happens with tax reform.

The projections are based on the inflation data released last week by the U.S. Department of Labor. However, Wolters Kluwer added the important caveat that the tax reform legislation taking shape in Washington could ultimately change the final numbers, although current inflation factors would probably still play a role in determining the tax bracket and other ceiling amounts, even if tax rates and similar variables changed. Bloomberg BNA and Thomson Reuters released their estimates last week (see Inflation-adjusted tax rates predicted for 2018).

No matter what tax reform legislation emerges from Congress, Wolters Kluwer believes that many taxpayers will get tax cuts anyway, thanks to the inflation adjustments. The 2018 projections represent the largest year-over-year inflation adjustment since 2007. Because the tax savings have already been factored into current law, there won’t be an extra budgetary expense on any other tax reform measures that could pass. There’s also the possibility that Congress could make any tax rate cuts enacted this year retroactive to Jan. 1, 2017, instead of beginning them in 2018.

Bloomberg

A single filer with taxable income of $50,000 should owe $105 less next year due to the adjustments to the income tax rate brackets between 2017 and 2018.
A married couple filing jointly with a total taxable income of $130,000 should pay $170 less in income taxes for 2018 than they would on the same income for 2017 because of indexing of their tax bracket for 2018.

The additional standard deduction for taxpayers over the age of 65, who are married filing jointly or separately or surviving spouses, or who are blind, is expected to increase $50 to $1,300 for 2018, and the expected amount for single taxpayers age 65 or older is expected increase to $1,600.

The personal exemption amount is estimated to rise to $4,150 for 2018, a $100 dollar jump from 2017.

The standard deduction for single, married filing jointly, and married filing separately filers is anticipated to rise for 2018: at $6,500, $13,000 and $6,500, respectively, up from $6,350, $12,700 and $6,350. The standard deduction for heads of household is projected to rise $200 to $9,550 for 2018. Any increase in the standard deduction, of course, can produce lower taxes by decreasing the taxpayer’s taxable income. President Trump has proposed doubling the standard deduction.

Unless tax cut legislation passes this year, 2018 will represent the sixth year that the 39.6-percent tax bracket for higher-income taxpayers, enacted by the American Taxpayer Relief Act of 2012, will be levied. For next year, Wolters Kluwer anticipates the minimum taxable income amounts at which this top tax rate will kick in will rise to $480,050 (from $470,700) for married joint filers, $453,350 (from $444,550) for heads of households, $426,700 (from $418,400) for unmarried filers, and $240,025 (from $235,350) for married separate filers.

The inflation-adjusted amounts will also trigger a 20 percent tax on that part of taxable income attributable to net capital gains and qualified dividends over those bracket amounts. On top of that, a 3.8 percent surtax on net investment income currently applies to taxpayers whose modified adjusted gross income exceeds $200,000 for single filers and $250,000 for joint returns. The NII threshold amounts aren’t annually adjusted for inflation, so the extra tax is more likely to reach a greater number of taxpayers every year. The tax would have been eliminated if the ACA had been repealed this summer, and it’s not clear if it will be repealed in Congress’s tax reform bill.

The estate and gift tax applicable exemption was originally set at $5 million in 2011. The amount has been adjusted for inflation by Congress and is now expected to be $5.6 million for 2018. A spousal portability election can now effectively protect double that amount against estate and gift tax ($11,200,000 for 2018). Some tax reform proposals advocate eliminating the estate tax, though some form of gift tax could remain. The annual gift tax exclusion for 2018 is expected to increase $1,000, sheltering gifts up to $15,000 per donee.

The 2018 foreign earned income exclusion is projected to increase to $104,100 for 2018, up from $102,100 for 2017.

The income phaseout range for married joint filers making Roth IRA contributions will start at a $189,000 adjusted gross income level for 2018 tax year contributions, an increase from $186,000 for 2017.

Wolters Kluwer’s projections are based on inflation data released by the U.S. Department of Labor, but the IRS might not release the official numbers until November. In the meantime, the estimated numbers should not be relied on for income tax returns or other tax-related purposes until they’re confirmed by the IRS later this year. They are also subject to amendment by Congress for the rest of the year, and perhaps even retroactively next year. That means the following numbers are projected for the 2018 tax year and have not been confirmed by the IRS.

Married Filing Jointly (and Surviving Spouse)


Tax Rate

2017 Taxable Income

2018 Taxable Income

10%

$0 - $18,650

$0 – $19,050

15%

$18,651 – $75,900

$19,051 – $77,400

25%

$75,901 – $153,100

$77,401 – $156,150

28%

$153,101 – $233,350

$156,151 – $237,950

33%

$233,351 – $416,700

$237,951 – $424,950

35%

$416,701 – $470,700

$424,951 – $480,050

39.6%

$470,701+

$480,051+


Unmarried Individuals (Other Than Surviving Spouses and Heads of Households)


Tax Rate

2017 Taxable Income

2018 Taxable Income

10%

$0 – $9,325

$0 – $9,525

15%

$9,326 – $37,950

$9,526 – $38,700

25%

$37,951 – $91,900

$38,701 – $93,700

28%

$91,901 – $191,650

$93,701 – $195,450

33%

$191,651 – $416,700

$195,451 – $424,950

35%

$416,701 – $418,400

$424,951 – $426,700

39.6%

$418,401+

$426,701+


Head of Household


Tax Rate

2017 Taxable Income

2018 Taxable Income

10%

$0 – $13,350

$0 – $13,600

15%

$13,351 – $50,800

$13,601 – $51,850

25%

$50,801 – $131,200

$51,851 – $133,850

28%

$131,201 – $212,500

$133,851 – $216,700

33%

$212,501 – $416,700

$216,701 – $424,950

35%

$416,701 – $444,550

$424,951 – $453,350

39.6%

$444,551+

$453,351+


Married Individuals Filing Separate Returns


Tax Rate

2017 Taxable Income

2018 Taxable Income

10%

$0 – $9,325

$0 – $9,525

15%

$9,326 – $37,950

$9,526 – $38,700

25%

$37,951 – $76,550

$38,701 – $78,075

28%

$76,551 – $116,675

$78,076 – $118,975

33%

$116,676 – $208,350

$118,976 – $212,475

35%

$208,351 – $235,350

$212,476 – $240,025

39.6%

$235,351+

$240,026+

Standard Deduction Amounts


Filing Status

2017

2018

Increase

Married Filing Jointly (& Surviving Spouse)

$12,700

$13,000

$300

Married Filing Separately

$6,350

$6,500

$150

Single

$6,350

$6,500

$150

Head of Household

$9,350

$9,550

$200

Standard Deduction for Dependents

2017

2018

Increase

$1,050

$1,050

$0

Personal Exemption Amounts

2017

2018

Increase

$4,050

$4,150

$100


Gift Tax Exclusion

2017

2018

Increase

$14,000

$15,000

$1,000

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Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.