Inflation Adjustments Under Recently Enacted Tax Law

by John T. Wojcik, CPA, MST, CVA  | Selden Fox

Each year, the dollar amounts for a variety of tax provisions are adjusted to keep pace with inflation. The Internal Revenue Service (IRS) has updated the tax year 2018 annual inflation adjustments to reflect changes from the Tax Cuts and Jobs ACT (TCJA).

The following outlines the tax year 2018 adjustments to be used on tax returns filed in 2019.

  • The TCJA reduced tax rates for many taxpayers. The new rates are 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and a top rate of 37 percent. For tax year 2018, the highest tax rate applies to married individuals filing jointly and surviving spouses with taxable income of $600,000 or more. The highest tax rate applies to single taxpayers and heads of households with incomes over $500,000, and to married taxpayers filing separately with incomes over $300,000.
  • The personal and dependent exemption has been eliminated and is now $0.
  • The standard deduction for married couples filing a joint return increased to $24,000; the deduction for singles and married individuals filing separately rises to $12,000; and the deduction for heads of household increased to $18,000.
  • The Alternative Minimum Tax (AMT) exemption amount for tax year 2018 is significantly increased under the TCJA. For tax year 2018, the exemption amount for single taxpayers is $70,300 and begins to phase out at $500,000, and the exemption amount for married couples filing jointly is $109,400 and begins to phase out at $1 million.
  • The estate tax exclusion for tax year 2018 increased from $5,490,000 to $11,180,000.
  • The 2018 gift tax annual exclusion increased $1,000 to $15,000.
  • The Section 179 expensing limit increased from $510,000 to $1,000,000, and the property cost phaseout begins at $2.5 million. Bonus depreciation is now 100%.
  • For 2018, the foreign earned income exclusion will be $103,900.
  • The elective deferral limit for employees who participate in section 401(k), 403(b), or 457(b) plans increased by $500 to $18,500 annually. The catch-up contribution limit under those plans for those aged 50 and over remains at $6,000.
  • The Roth IRA contribution limit remained at $5,500 with a $1,000 catch-up contribution, however, the income phase-out for those who contribute to a Roth IRA increased. The phase-out range for married couples filing jointly is $189,000 – $199,000. The phase-out range for singles and heads of household is $120,000 – $135,000.
  • For 2018, the maximum earned income tax credit (EITC) will be $6,431 for taxpayers with three or more qualifying children. The amount of the credit varies depending on family size and filing status.
  • The modified adjusted gross income threshold for the lifetime learning credit now begins to phase out at $114,000 for joint filers.
  • The Social Security Administration announced that the Social Security wage base increased from $127,200 to $128,700.
  • The limit on the value of the qualified transportation benefits exclusion for qualified parking provided by an employer to its employees increases by $5 to $260 per month.

 John T. Wojcik, CPA, MST, CVA

John Wojcik is a Certified Valuation Analyst and a member of the National Association of Certified Valuators and Analysts (NACVA). John earned his bachelor’s degree in accounting and finance from Illinois State University and his MST in taxation from Northern Illinois University – College of Business.