Tax Reform 101 for Families

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The Tax Cuts and Jobs Act is the largest piece of tax reform legislation in 30 years and was signed into law on December 22, 2017. For most people, these tax changes impact Tax Year 2018 (returns filed in the winter or spring of 2019) and not returns filed in the winter or spring of 2018.

Overall, the changes associated with this act will lower taxes for individuals and small businesses, right on! You can see the tax reform’s complete summary of changes to know how you might be impacted.

How Are Families Impacted?

The following infographic provides a glimpse at the impact for a typical family of four before and after the tax changes are applied. You can also check out additional infographics which will give you a mock look at how your results may look depending on your tax status.

1. Lower Tax Rates: 7 tax rates under the new law: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Here is the tax rate schedule for joint filers:

2. Standard Deduction Increased: The standard deduction for folks not itemizing deductions on Schedule A is increased to $24,000 married filing joint, $18,000 head of household and $12,000 for other filing statuses. For folks who are itemizing deductions, there is no longer a phase-out for high-income earners.

3. Personal Exemption Repealed: Under prior law, the personal exemption was $4,050.

4. Child Tax Credit: The Child Tax Credit for children under 17 years old is doubled from $1,000 to $2,000. $1,400 of the credit is refundable and applies when there is no tax liability. The income levels when the credit phases out are increased to $400,000 for joint filers and $200,000 for others.

  • A $500 non-refundable credit is available for dependents who are not your children.
  • A Social Security Number for the child is now required to receive the credit.

5. State and Local Tax Deduction: The itemized deduction claimed on Schedule A for state and local taxes is now limited to $10,000 ($5,000 for married filing separately) on the aggregate of the following items: (no limit under prior law)

  • State and local property taxes
  • State and local income taxes OR sales taxes

6. Mortgage & Home Equity Debt: The itemized deduction claimed on Schedule A for mortgage interest is now limited to underlying debt of up to $750,000 ($375,000 for married filing separately). The prior limit of $1 million continues to apply for 1) debt incurred on or before December 15, 2017, and 2) refinancing existing debt that was incurred before December 31, 2017.

  • There is no longer a deduction for interest on home equity debt.

7. Tax Deductions That Are Going Away:

  • Moving expenses (the exclusion for reimbursements also goes away), except for members of the Armed Forces on active duty.
  • Miscellaneous itemized deductions subject to the 2% income limit, such as job expenses and investment expenses.
  • Personal casualty and theft losses, unless they were incurred in a federally declared disaster.

8. Alimony: For divorce or separation agreements executed after December 31, 2018, alimony and separate maintenance payments are not deductible by the payer and not included in the income of the recipient. This was not the case under prior law.

9. Affordable Care Act Mandate: Individuals who are not covered by insurance or an exemption will no longer have to pay a penalty beginning in 2019.

What Should You Do Next? 

TurboTax has you covered and will be up to date with the latest tax laws. If you have more questions while doing your taxes, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered and have your return reviewed so you can sign it and file.

Additional Resources:

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