INDIVIDUAL TAXATION AFTER THE TAX CUT AND JOB ACT OF 2017 1

Individual Taxation after Tax Cut and Job Act of 2017

Leonor Cortes

Albertus Magnus College

INDIVIDUAL TAXATION AFTER THE TAX CUT AND JOB ACT OF 2017 2

Introduction

All professional accountants and others, who advise individuals about their income tax and

tax return preparation, should have extensive knowledge about the most important reform that

has been realized in the last 30 years called Tax Cut and Job Act (TCJA) of 2017.

The TCJA was passed, signed by President Donald Trump, and became the 115th Congress

Public Law No.97 on 12/22/17. It was enacted by the Senate and House Representative of the

United States of America in Congress assembled. (C.2017.)

The TCJA made some changes to the tax law which affected the individuals’ taxation. The

most important changes included are: The new tax rates, tax brackets, increased the standard

deductions, repealed the personal exemption, increased the child tax credits, introduced the

credit for other dependents, the alimony is no longer deductible, maintained the American

Opportunity and the Lifetime Learning credits, and expanded the benefits of the 529 plan. This

legislation took effect as of January 1, 2018, to December 31, 2025.

Individual Taxation after the Tax Cut and Job Act of 2017

The tax rates and tax brackets

The tax rates changed from 10%, 15%, 25%, 28%, 33%, 35%, and 39.5% to 10%, 12%,

22%, 24%, 32%, 35%, and 37%. In comparison with the previous tax rates, these new seven tax

rates maintain the 10% but the others six decreased. They are the same for all filers but the tax

brackets depend of the taxable income and filing status. The individual tax brackets will be

adjusted for inflation every year through 2025.

For single filers, the new tax brackets for 10% and 12% maintain the same widths than the

pre-TCJA for 10% and 15%. After the tax brackets for 22% to 32% are now narrower than
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before, and the bracket for 35% took part of the previous 33% and 35%, it was expanded to

$500,000, it is higher than the previous 35% that was $426,700, and the last bracket for 37%

starts in $500,000 more than previous for 39.60% of $426,700. (El-Sibaie., T.2018.)

In the case of married filing jointly, the widths of the tax brackets for 10% and 12% are the

same than previous for 10% and 15%. The brackets for 22% and 24% are wider than previous

25% and 28%. The new tax bracket for 32% is $315,000 to $400,000, it is higher at the

beginning but narrower at the end in comparison with the previous 33% that was $237,950 to

$424,000. The tax bracket for 35%, $400,000 - $600,000, took part of the previous for 33%,

35%, and 39.60%, it was expanded to $600,000, and it is much more than the previous 39.60%

which was $480,050. The last tax bracket for 37% starts at $600,000 higher than previous

39.60%, $480,050 and more. (El-Sibaie., T.2018.)

Analyzing the facts that the tax rates decreased and the widths of some tax brackets were

modified, some of them are narrower and others wider than previous tax brackets, all combined

are compensated with the new tax rates which are lower than before. These new tax rates benefit

greatly those taxpayers of low taxable income but also, those with high income due to the widths

of the tax brackets for 35% is wider than before, that means more people are covered with this

tax rate, and the last tax bracket for 35% starts at $600,000, it is higher than previous for 39,60%

whic h started at $480,050.

Deductions

The standard deductions were increased for each filing status, from $6,350 to $12,000 for

singles and married filing separately, $9,350 to $18,000 for head of households, and $12,700 to

$24,000 for married filing jointly and surviving spouse. The standard deduction may increase if

the taxpayer is 65 or older at the end of the year, and/ or is blind, in any case you can take the
INDIVIDUAL TAXATION AFTER THE TAX CUT AND JOB ACT OF 2017 4

additional deduction by $1,600 for single or head of household and $1,300 by married filing

jointly, married filing separated, or surviving spouse. This additional deduction for blind

taxpayers or over 65 remained in effect in the TCJA.

The personal exemption was $4,050 for each qualifying person that the taxpayers could

claim for themselves, their spouses and any dependents in 2017. It was repealed under the TCJA

beginning January 1, 2018 through December 31, 2025.

Although the personal exemption of $4,750 per qualifying person was eliminated, it was

compensated with the increment of the standard deductions and the addition of the deductions

for elderly over 65 and for blind people. Furthermore, these deductions also reduce the

percentage of the filers who need to itemize their deductions. The standard deductions are

subtracted from the gross income, above-the-line, to get the adjusted gross income (AGI). That

means that the standard deductions reduce the taxable income.

In the following situations the taxpayer is not allowed to take the standard deductions and

must itemize: Married filing separately if the spouse itemizes; a nonresident aliens and dual-

status; and if you are claimed as a dependent on another person’s tax return. (IRS.2018)

Itemized deductions

The TCJA modified or discontinued the previous itemized deductions. The following

itemized deductions were modified: the medical expense deduction, state and local tax

deduction, deduction for home mortgage interest, deduction for charitable contribution,

deduction for casualty and theft losses. Some of the discontinued itemized deductions were:

miscellaneous itemized deductions and deduction and exclusion for moving expenses.
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The medical expense deduction decreased the percentage from 10% to 7.5% of the

taxpayer’s AGI. If the calculation is less than the standard deduction according to the filing

status, it does not have sense to itemize.

The state and local tax (SALT) deduction previously allowed to deduct the entire payment

of either state income tax or state sales tax, not both, plus state and local property taxes. Under

the TCJA, when you claim for all state income, local sales, state, and property taxes, even

though the total amount is higher, you can only take a limited deduction of $10,000 for joint

filers and $5,000 for single filers. (IRS.2018). These limited amounts will not be adjusted for

inflation. This new determination affects especially to those taxpayers with higher income.

Before, the taxpayers could take the deduction for home mortgage interest up to $1,000,000

for jointly filers and $500,000 for separately filers in qualifying debt. Under the TCJA, the

taxpayers can take an interest deduction up to $1,000,000 for jointly and $500,000 for separately

filers if the loan was originated before December 15, 2017. After that date, if a loan was

acquired, the interest deduction decreased to $750,000 for jointly filers and $375,000 for

separately filers. The mortgage interest is based on loans used to buy, build or improve the

taxpayer’s main home and second home.

The charitable contribution deduction was increased from 50% to 60% of the AGI. This

means you can take a higher deduction donating to qualifying organization, especially if you are

a high-income taxpayer. If your donations were sent to the following types of organizations, they

are not deductible: “Chamber of Commerce, civic leagues and associations, political

organizations and candidates, social clubs, foreign organizations, homeowner’s associations, and

communist organizations”. (IRS.2018. p.21-8)

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The deduction for casualty and theft losses was modified. Before, individuals could itemized

for casualty losses originated by the following events: Fire, storm, shipwreck, theft, and other

casualty with two limitations, the loss had to exceed $100 or the total of losses exceeded the

10% of the AGI. The TCJA eliminated the personal casualty and theft losses through 2025.

Currently, taxpayers can deduct only if the losses were caused by a declared disaster and

recognized by the President as it. In this case, the taxpayers can claim the itemized deduction for

personal casualty loss if it exceeded the $100 or the total exceeded the 10% of AGI.

The itemized deductions are subtracted from the AGI at the-bottom-line. That means, that

these deductions help to reduce the taxable income. If you itemized you cannot use the standard

deductions or vice versa. To itemized, you need to keep records of the receipts, documents, and

other proofs to support your expenses in case that IRS requires them in the future.

Alimony

The alimony and separate maintenance payments, previously to the TCJA, were deductible

by the payor and taxable to the recipient. Beginning on January 1, 2019 through December 31,

2025, the alimony deduction was eliminated and it is not deductible but income taxable to the

person who pays, and not taxable to the recipient. These changes do not affect to those divorced

couples whose divorce or separation agreement or judgement finalized before December 31,

2018

Family Tax Credits

The TCJA increased child tax credit from $1,000 to 2,000 per qualifying child beginning in

January 1, 2018 through December 31, 2025. A portion of this credit is nonrefundable but the

additional child tax credit, which is part of the child tax credit, may be refundable up to $1,400
INDIVIDUAL TAXATION AFTER THE TAX CUT AND JOB ACT OF 2017 7

per child if the taxpayer doesn’t owe any tax before claiming the credit. This credit is for

individuals who get less than the full amount of the child tax credit. To be eligible, the taxpayer

must have at least a qualifying child as a dependent and meet the following requirements: The

child is under 17 at the end of the tax year, lived with the taxpayer for more than 6 months, is a

U.S. citizen, U.S. national, or resident of the U.S., and must have a Social Security number. The

family must earn minimum of $2,500 to claim the credit. (IRS, 2018. p.1-4.) The threshold

amount to be eligible to take the child tax credit based on adjusted gross income increased from

$110,000 to $400,000 in the case of married joint filers, from $55,000 and $75,000 to $200,000

for married filing separately, singles, and household filers. (IRS.2018. p.25-2).

 The TCJA introduced the tax credit for other dependents of $500 per person. It is

nonrefundable. It covers dependents who do not qualify for the child tax credit. It is used for

children 17 and over, elderly parents, and for those who do not have Social Security but ITTN.

(IRS, 2018.)

The increment of the child tax credit, the wider thresholds, and the inclusion of the new tax

credit for other dependents will benefit more families of low income up to those with taxable

income of $400.000 for joint filers and $200,000 for other filers.

Education tax credit and 529 Plan

The TCJA did not make changes to the American Opportunity Tax Credit (AOTC) and

the Lifetime Learning Credit (LLC). With the AOTC you can take a credit up to $2,500 per

eligible student. It is partially nonrefundable but the other portion, 40% of $2,500, is refundable

up to $1,000. This credit is available for those students which are studying the first four years of

higher education in an eligible educational institution, they are enrolled at least half-time, and
INDIVIDUAL TAXATION AFTER THE TAX CUT AND JOB ACT OF 2017 8

have the Form 1098-T. You cannot claim the AOTC if your modified gross income is $180,000

for jointly filers, or $90,000 for single, head of household, or qualifying widower. The Lifetime

Learning Credit is a credit used for those graduated or undergraduate students which are

studying less than half-time, or work full-time and study at night to develop their skills or get a

degree. This credit is a nonrefundable up to $2,000 per eligible student. The limit on modified

gross income to claim this credit is $134,000 if married jointly or $67,000 if single, head of

household, or qualifying widower. (D., & I. 2018).

The AOTC and LLC reduce the taxable income but the AOTC reduce the tax to pay

when you take the refundable portion of $1,000 per student.

According to the TCJA, the earnings from 529 plans are not Federal and state taxable, all

contributions are fully deductible, and you can save tax-free up to $10,000 per student per year.

Previously, this plan was for qualified higher education expenses, now it was expanded to

include expenses for tuition in connection with enrollment or attendance an elementary or

secondary public, private, or religious schools.

The expansion of 529 plan allows the parent to send their children to the school they want

and pay with this plan.

Conclusion

The TCJA legislation eliminated, maintained, increased, and made some important changes

to the IRS Code of the individual’s taxation, effective as January 1, 2018 to December 31, 2025.

One of the most important changes was the increment of the standard deduction. With the

new values the taxpayers do not need to take itemized deductions.

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Furthermore, it provides tax relief for families with children through the child tax credits for

qualifying children or other dependents.

The TCJA promotes education through education tax credits such as American

Opportunity, Lifetime Learning and modifies the saving rules of the 529 plans. Currently, the

earnings from 529 plans are not taxable and you can save tax-free up to $10,000 per student per

year.

Upon its expiration, the pre-TCJA provision of the internal Revenue Code will once

again become a law.

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References

C. (2017, December 22). Public Law 115-97 115th Congress 131 Stat 2054. (Enacted).

Retrieved May 11, 2019, from: https://www.congress.gov/115/plaws/publ97/PLAW-

115publ97.pdf. (p.2)

El-Sibaie, A. & T. (2018, January 2). 2018 Tax brackets. Retrieved May11, 2019, from:

https://www.taxfoundation.org/2018-tax-brackets/

D., & I. (2018). Publication 970. Retrieved May16, 2019, from https://irs.gov/pub/irs-

pdf/p970.pdf . (p.7, 8)

Foundation, T. (2017, December). Preliminary details and analysis of the tax cuts and jobs act.

Retrieved from: https://taxfoundation.org/final-tax-cut-and-jobs-act-details-analysis/

H&R. (2018, October 03). Changes to education with the tax reform. Retrieved May 15, 2019,

from: https://www.hrblock.com/tax-center/irs/tax-reform/changes-education-tax-reform/

IRS. (2018, December). IRS 4012 VITA/TCE training guide. Retrieved from:

https://www.irs.gov/pub/irs-pdf/p4012.pdf

IRS. (2018). IRS 4491 VITA/TCE training guide. Retrieved May 11, 2019, from

https://www.irs.gov/pub/irs-pdf/p4491.pdf (p.4, 5, 7)

IRS. 2018. Questions and Answers about the 2018 Form 1040. Retrieved April 28, 2019,

from: https://www.irs.gov/forms-pubs/questions-and-answers-about-the-2018-form-

1040

Langdon, T., Grange, E., Dalton, M. (2018). Income tax planning (11th ed.). Metairie, LA:

Money Education.

Treasury. (2017).Tax cuts and jobs act. Retrieved from: https://home.treasury.gov/TaxCutCutCut

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Treasury. (2017). Tax cuts for the American family. Retrieved from:

https://home.treasury.gov/policy-issues/top-priorities/tax-cuts-and-jobs-act/tax-cuts-for-

the-american-family