2018 Tax Bill

Here's a summary of how the plan changes income taxes, deductions for child and elder care, and business taxes.

Income Tax Brackets

The final tax bill keeps the seven income tax brackets but lowers tax rates. These rates will revert to the current rate in 2026. Until then, the plan creates the following chart.

Income Tax Rate Income Levels for Those Filing As:
Current Tax Bill Single Married/Joint
10% 10% $0-$9,525 $0-$19,050
15% 12% $9,525-$38,700 $19,050-$77,400
25% 22% $38,700-$82,500 $77,400-$165,000
28% 24% $82,500-$157,500 $165,000-$315,000
33% 32% $157,500-$200,000 $315,000-$400,000
33%-35% 35% $200,000-$500,000 $400,000-$600,000
39.6% 37% $500,000+ $600,000+

This bill keeps:

  • Deductions for charitable contributions, property taxes, mortgage interest, and retirement savings.
  • Deduction for student loan interest.
  • Alternative Minimum Tax. It increases the exemption from $54,300 to $70,300 for singles and from $84,500 to $109,400 for joint. The exemptions phase out at $500,000 for singles and $1 million for joint. The exemption reverts to current levels in 2026.
  • Tax credits for electric vehicles and wind farms.
  • Taxpayers can deduct up to $10,000 in state and local taxes. They must choose between property taxes and income or sales taxes.

This bill eliminates:

  • Most itemized deductions. That includes moving expenses, except for members of the military.
  • Deduction for those paying alimony. This change begins in 2019 for divorces signed in 2018.
  • Tax on income for those receiving alimony. This change begins in 2019 for divorces signed in 2018.
  • Interest on home equity lines of credit. Current mortgage-holders are not affected.
  • Obamacare tax on those without health insurance.
  • Personal exemptions. Taxpayers currently subtract $4,150 from income for each person claimed.
  • Business Taxes
    • Corporate AMT. The corporate AMT had a 20 percent tax rate that kicked in if tax credits pushed a firm's effective tax rate below that level. For example, companies could no longer deduct research and development spending or investments in low-income neighborhood. Elimination of the corporate AMT adds $40 billion to the deficit.
    • Tax on foreign profit. The bill advocates for a change from the current "worldwide" tax system to a "territorial" system. Under the worldwide system, multinationals are taxed on foreign income earned. They don't pay tax until they bring profits home. As a result, many corporations leave it parked overseas. Under the territorial system, they aren't taxed on that foreign profit. They would be more likely to reinvest it in the United States.
    • The tax bill allows companies to repatriate the $2.6 trillion in foreign cash stockpiles. They pay a one-time low tax rate of 15.5 percent on cash and 8 percent on equipment.

This bill limits/decreases:

  • Deduction on mortgage interest to the first $750,000 of the loan.
  • Taxes on beer, wine, and liquor.
  • Deduction for orphan drug research from 50 percent to 25 percent. Orphan drugs target rare diseases.
  • Business Taxes
    • Maximum corporate tax rate from 35 percent to 21 percent, the lowest since 1939.
    • Corporations' ability to deduct interest expense to 30 percent of income.

This bill increases:

  • Deduction for medical expenses for 2018. It allows taxpayers to deduct medical expenses that are 7.5 percent or more of income. Currently, people can deduct medical expenses that are 10 percent or more.
  • Standard deduction for everyone (doubles it). A single filer's deduction increases from $6,350 to $12,000. The deduction for Married and Joint Filers increases from $12,700 to $24,000. It reverts back to the current level in 2026.
  • Increased taxes for families with many children despite the increased standard deductions. For example, a married couple with two children making $56,000 a year would pay $68 more a year.
  • Estate tax exemption to $11.2 million for singles and $22.4 million for couples (doubles it).
  • Child and Elder Care Deductions
    • Child Tax Credit from $1,000 to $2,000. Credit is refundable up to $1,400. It increases the income level from $110,000 to $400,000 for married tax filers.
    • The bill allows parents to use 529 savings plans for tuition at private and religious K-12 schools. They can also use the funds for certain educational expenses for home-schooled students.
    • It allows a $500 credit for each non-child dependent. The credit helps families caring for elderly parents.
  • Business Taxes
    • Standard deduction to 20 percent for pass-through businesses. The deductions are limited once the income reaches $157,500 for singles and $315,000 for joint. Pass-through businesses include sole proprietorships, partnerships, limited liability companies, and S corporations. They also include real estate companies, hedge funds, and private equity funds.
    • Deductions for the cost of depreciable assets in one year, instead of amortizing them over several years. It does not apply to structures. To qualify, the equipment must be purchased after September 27, 2017, and before January 1, 2023.