Personal exemptions are eliminated for tax years 2018 through 2025.
The standard deduction for married couples filing a joint return in 2019 is $24,400. For singles and married individuals filing separately, it is $12,200, and for heads of household, the deduction is $18,350.
The additional standard deduction for blind people and senior citizens in 2019 is $1,300 for married individuals and $1,650 for singles and heads of household.
Income Tax Rates
In 2019 the top tax rate of 37 percent affects individuals whose income exceeds $510,300 ($612,350 for married taxpayers filing a joint return). Marginal tax rates for 2019 are as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. As a reminder, while the tax rate structure remained similar to prior years under tax reform (i.e., with seven tax brackets), the tax-bracket thresholds increased significantly for each filing status.
Estate and Gift Taxes
In 2019 there is an exemption of $11.40 million per individual for estate, gift, and generation-skipping taxes, with a top tax rate of 40 percent. The annual exclusion for gifts is $15,000.
Alternative Minimum Tax (AMT)
For 2019, exemption amounts increased to $71,700 for single and head of household filers, $111,700 for married people filing jointly and for qualifying widows or widowers, and $55,850 for married taxpayers filing separately.
Pease and PEP (Personal Exemption Phaseout)
Both Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) have been eliminated under TCJA.
Flexible Spending Account (FSA)
A Flexible Spending Account (FSA) is limited to $2,700 per year in 2019 (up from $2,650 in 2018) and applies only to salary reduction contributions under a health FSA. The term “taxable year” as it applies to FSAs refers to the plan year of the cafeteria plan, which is typically the period during which salary reduction elections are made.
Long-Term Capital Gains
In 2019 tax rates on capital gains and dividends remain the same as 2018 rates (0%, 15%, and a top rate of 20%); however, taxpayers should be reminded that threshold amounts don’t correspond to the tax bracket rate structure as they have in the past. For example, taxpayers whose income is below $39,375 for single filers and $78,750 for married filing jointly pay 0% capital gains tax. For individuals whose income is at or above $434,550 ($488,850 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.
Miscellaneous deductions that exceed 2 percent of AGI (adjusted gross income) are eliminated for tax years 2018 through 2025. As such, you can no longer deduct on Schedule A expenses related to tax preparation, moving (except for members of the Armed Forces on active duty who move because of a military order), job hunting, or unreimbursed employee expenses such as tools, supplies, required uniforms, travel, and mileage. Business owners are not affected and can still deduct business-related expenses on Schedule C.
Individuals – Tax Credits
In 2019 a nonrefundable (i.e., only those with tax liability will benefit) credit of up to $14,080 is available for qualified adoption expenses for each eligible child.
Child and Dependent Care Credit
The Child and Dependent Care Tax Credit was permanently extended for taxable years starting in 2013 and remained under tax reform. As such, if you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses.
For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher-income earners, the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.
Child Tax Credit and Credit for Other Dependents
For tax years 2018 through 2025, the Child Tax Credit increases to $2,000 per child. The refundable portion of the credit increases from $1,000 to $1,400 – 15 percent of earned income above $2,500, up to a maximum of $1,400 – so that even if taxpayers do not owe any tax, they can still claim the credit. Please note, however, that the refundable portion of the credit (also known as the additional child tax credit) applies higher-income when the taxpayer isn’t able to fully use the $2,000 nonrefundable credit to offset their tax liability.
Under TCJA, a new tax credit – Credit for Other Dependents – is also available for dependents who do not qualify for the Child Tax Credit. The $500 credit is nonrefundable and covers children older than age 17 as well as parents or other qualifying relatives supported by a taxpayer.
Earned Income Tax Credit (EITC)
For tax year 2019, the maximum earned income tax credit (EITC) for low and moderate-income workers and working families increased to $6,557 (up from $6,431 in 2018). The maximum income limit for the EITC increased to $55,952 (up from $54,884 in 2018) for married filing jointly. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.
Individuals – Education Expenses
Coverdell Education Savings Account
You can contribute up to $2,000 a year to Coverdell savings accounts in 2019. These accounts can be used to offset the cost of elementary and secondary education, as well as post-secondary education.
American Opportunity Tax Credit
For 2019, the maximum American Opportunity Tax Credit that can be used to offset certain higher education expenses is $2,500 per student, although it is phased out beginning at $160,000 adjusted gross income for joint filers and $80,000 for other filers.
Lifetime Learning Credit
A credit of up to $2,000 is available for an unlimited number of years for certain costs of post-secondary or graduate courses or courses to acquire or improve your job skills. For 2019, the modified adjusted gross income (MAGI) threshold at which the Lifetime Learning Credit begins to phase out is $114,000 for joint filers and $57,000 for singles and heads of household. The credit cannot be claimed if your MAGI is $67,000 or more ($134,000 for joint returns)
Employer-Provided Educational Assistance
As an employee in 2019, you can exclude up to $5,250 of qualifying postsecondary and graduate education expenses that are reimbursed by your employer.
Student Loan Interest
In 2019, you can deduct up to $2,500 in student-loan interest as long as your modified adjusted gross income is less than $65,000 (single) or $135,000 (married filing jointly). The deduction is phased out at higher income levels.
Individuals – Retirement
For 2019, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $19,000 ($18,500 in 2018). For persons age 50 or older in 2019, the limit is $25,000 ($6,000 catch-up contribution).
Retirement Savings Contributions Credit (Saver’s Credit)
In 2019, the adjusted gross income limit for the saver’s credit for low and moderate-income workers is $64,000 for married couples filing jointly, $48,000 for heads of household, and $32,000 for married individuals filing separately and for singles. The maximum credit amount is $2,000 ($4,000 if married filing jointly). Also of note is that starting in 2018, the Saver’s Credit can be taken for your contributions to an ABLE (Achieving a Better Life Experience) account if you’re the designated beneficiary. However, keep in mind that your eligible contributions may be reduced by any recent distributions you received from your ABLE account.
If you have any questions about these and other tax provisions that could affect your tax situation, don’t hesitate to call.