• Taxes & Insurance

How Will Tax Law Changes Affect Me in 2019?

January 30, 2019 | Paul Deer, CFP®

Tax Law Changes: 2019

For a complete guide to filing your income taxes from the 2018 tax year, read our 2019 Tax Guide.

How Tax Law Changes Could Affect Your 2018 Income Tax Return

The tax-filing season that just got underway is the first one under the major Tax Cuts and Jobs Act that was passed in late 2017. This was the biggest change in the U.S. tax code in more than three decades, so you’re probably wondering how these changes could affect your taxes this year.

Following is a look at some of the key tax law changes for 2019 – these went into effect for the 2018 tax year so will impact how you file your taxes in the spring of this year.

To Itemize or Not to Itemize?

Two of the biggest changes that will affect many taxpayers are the doubling of the standard deduction and elimination of the personal exemption. The new standard deduction will be $24,000 for married couples filing jointly, $18,000 for a head of household and $12,000 for single filers and married couples filing separately. Meanwhile, the $4,150 personal exemption has been repealed.

As a result of these changes, fewer taxpayers may decide to itemize deductions. This is because the total amount of itemized deductions may no longer be greater than the standard deduction. If this applies to your situation, the tax preparation process could be easier for you this year if you’ve itemized deductions in the past.

Tax reform also lowered individual tax rates across the board. Here are the new individual tax brackets (which also apply to many businesses that are organized as pass-through entities):

Rate Single Filers Married, Filing Jointly Head of Household
10% $0-$9,525 $0-$19,050 $0-$13,600
12% $9,526-$38,700 $19,051-$77,400 $13,601-$51,800
22% $38,701-$82,500 $77,401-$165,000 $51,801-$82,500
24% $82,501-$157,500 $165,001-$315,000 $82,501-$157,500
32% $157,501-$200,000 $315,001-$400,000 $157,501-$200,000
35% $200,001-$500,000 $400,001-$600,000 $200,001-$500,000
37% $500,000+ $600,001+ $500,000+

Source: https://taxfoundation.org/2019-tax-brackets/

The child tax credit was also doubled from $1,000 to $2,000, $1,400 of which is refundable, while raising the phase-out income range for claiming the credit. As a result, more families will be able to claim this valuable credit.

More Beneficial Tax Law Changes for 2019 Filing

A few other beneficial changes of tax reform include the following:

  • The adjusted gross income (AGI) threshold for deducting medical expenses has been lowered from 10% to 7.5% this year. This could benefit you if anyone in your family had major medical expenses last year.
  • The alternative minimum tax (AMT) exemption amount is raised to $109,400 for married couples filing jointly, $70,300 for singles and heads of household, and $54,700 for married couples filing separately. This change is expected to dramatically reduce the number of individuals who are subject to the severe complexities of AMT for the 2018 tax year and beyond.
  • The Affordable Care Act’s individual mandate requiring taxpayers to buy a qualifying health plan or pay a penalty has been repealed. This will benefit you if you chose not to purchase health insurance for your family and you didn’t have any unexpected medical costs.

Deductions Eliminated or Reduced

The flip side of these beneficial changes is that tax reform eliminated or reduced some popular deductions. Most notably, these include the deductions for interest on home equity loans, moving expenses, alimony for agreements signed after 2018, and personal casualty and theft losses.

The legislation also set a combined limit of $10,000 for deductions of sales, property taxes, and state and local taxes, while reducing the size of a mortgage that qualifies for the home mortgage interest deduction from $1 million to $750,000. Note that if you bought your home before December 14, 2017, the old mortgage limit of $1 million still applies.

Read More: How Housing Deductions Are Impacted by Tax Reform

What Do Tax Law Changes Mean for You?

So what does all of this mean for your 2018 taxes and potential tax refund? The answer will vary considerably from one individual or family to another.

According to the Tax Policy Center, about two-thirds (65 percent) of U.S. households will see their 2018 taxes reduced by an average of $2,180, while six percent of households will see their taxes go up by an average of $2,760. On average, federal tax refunds will be larger this year than usual, notes an article recently published in The Wall Street Journal.

Whether or not you will receive a tax refund, and how large the refund might be, will depend on several different factors. This starts with how much money was withheld from your pay last year to pay taxes.

Last February, the IRS changed how it calculates tax withholding from paychecks. As a result, taxpayers have already received about $180 billion in cumulative tax cuts via higher tax-home pay, notes The Wall Street Journal article. This leaves about $75 billion still to be distributed via tax refunds or smaller tax payments to the IRS when returns are filed.

The IRS expects more people than usual to owe taxes and penalties this year due to under-withholding, this article states, including those who usually receive refunds. Taxpayers at the greatest risk of owing are those who choose not to itemize this year after having done so in the past, households with two people earning wages, and those with complicated tax situations.

Our Take

Given all of this uncertainty, it might be smart to file your federal tax return sooner rather than later this spring. Be sure to speak with a tax professional for more details on how tax reform could affect you this year.

Read More: A Complete Guide To Filing Your Taxes in 2019

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