The 2017 Tax Cuts and Jobs Act (TCJA) represents the most significant update to the U.S. tax code in decades. The reforms were designed to simplify taxpaying for many individuals as well as lower taxes for individuals and businesses.
For larger businesses there is a new 21 percent corporate tax rate which is permanent while small businesses that pay taxes as individuals will receive a newly created 20 percent deduction.
For many individuals, the TCJA means a lower federal tax bill beginning in 2018 through lower tax rates, a larger standard deduction, and an expanded child tax credit. However, most of the individual tax changes are currently scheduled to sunset by or before 2026 with reversion of tax laws back to pre TCJA. Below are some of the highlights of the changes which impact individuals and families under TCJA.
Lower Individual Tax Rates. The framework lowers rates for almost every tax bracket. The current seven brackets remain, but with new, generally higher income thresholds and lower rates for each threshold.
Larger Standard Deduction. The standard deduction was almost doubled with the elimination of the personal exemptions to help simplify tax filing.
$2,000 Child Tax Credit. The child tax credit (CTC) increased from $1,000 to $2,000 per child with the phase out for married filers with incomes of more than $400,000, which reflects an increase from the phaseout threshold of $110,000 under prior law.
$10,000 State and Local Tax Deduction. Taxpayers who itemize their taxes will now be limited to a total deduction of up to $10,000 of state and local property taxes and income taxes (or sales taxes) paid.
$750,000 Limit on Mortgage Interest Deduction. Home mortgage interest paid on new debt up to $750,000 will remain deductible for those who itemize deductions. Deductions of interest from debt on second homes are excluded.
Charitable Deduction Expanded. The charitable deduction expands for those who itemize, from 50 percent of income to 60 percent.
Other Itemized Deductions Reduced. Many miscellaneous itemized deductions are no longer allowed with the retention of exclusions for medical expenses, tuition compensation, private activity bonds and teacher spending.
The allowable use of 529 College Savings Accounts was expanded to allow parents to save for K–12 and homeschooling expenses.
Individual Alternative Minimum Tax Remains. The parallel tax system was maintained however the exemption for the alternative minimum tax (AMT) increased from $86,200 to $109,400 for married filers and $54,300 to $70,300 for single filers. In addition, the threshold for phaseout of the AMT exemption was also increased significantly from prior law.