Finance in 2018: tax cut, higher tax bill, nothing major is changing for Medicare

• The standard deduction for married filing jointly rises to $13,000 for tax year 2018, up $300 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,500 in 2018, up from $6,350 in 2017, and for heads of households, the standard deduction will be $9,550 for tax year 2018, up from $9,350 for tax year 2017.
• The personal exemption for tax year 2018 rises to $4,150, an increase of $100. The exemption is subject to a phase-out that begins with adjusted gross incomes of $266,700 ($320,000 for married couples filing jointly). It phases out completely at $389,200 ($442,500 for married couples filing jointly.)
• For tax year 2018, the 39.6 percent tax rate affects single taxpayers whose income exceeds $426,700 ($480,050 for married taxpayers filing jointly), up from $418,400 and $470,700, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2018 are described in the revenue procedure.
• The limitation for itemized deductions to be claimed on tax year 2018 returns of individuals begins with incomes of $266,700 or more ($320,000 for married couples filing jointly).
• The Alternative Minimum Tax exemption amount for tax year 2018 is $55,400 and begins to phase out at $123,100 ($86,200, for married couples filing jointly for whom the exemption begins to phase out at $164,100). The 2017 exemption amount was $54,300 ($84,500 for married couples filing jointly). For tax year 2018, the 28 percent tax rate applies to taxpayers with taxable incomes above $191,500 ($95,750 for married individuals filing separately).
• The tax year 2018 maximum Earned Income Credit amount is $6,444 for taxpayers filing jointly who have three or more qualifying children, up from a total of $6,318 for tax year 2017. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.

The Joint Committee on Taxation, Congress’s nonpartisan scorekeeper in tax matters, released its evaluation of the House GOP’s tax bill, which passed the House on Thursday, 227 to 205, with 13 Republicans joining every Democrat to vote against the bill.

Broadly, the “Tax Cuts and Jobs Act” delivers quick tax cuts across all income brackets in 2018. Over time, however, the tax cuts phase out for lower-income taxpayers. Taxpayers making under $75,000 a year could see tax increases of much as $300 by 2027, and those making under $30,000 would see hikes by 2021.

At the same time, wealthier families will continue to see tax cuts at the end of the decade, with returns of at least $1 million, averaging $8,871 by 2027. The bill also slashes the corporate tax rate to 20% from 35%. In total, the total tax cuts would reach almost $1.5 trillion over the next decade.

The effects of this sequestration order would trigger automatic cuts to various programs, including Medicare. According to the CBO, this could be as much as 4% for Medicare, which amounts to $25 billion in 2018. Furthermore, all non-exempt programs would be eliminated, which include some farming subsidies, border security, and student loan help. Others, like Social Security, would remain untouched.

At the same time, the tax plan’s changes to the estate and gift taxes would cut revenue $151 billion from 2018 to 2027, according to the JCT. Only 4,700 estates were large enough to be subject to the estate tax as the 2017, since the exemption is over $5 million...

Touching Medicare has been traditionally considered explosive, and some have noted the “pay as you go” rules give Democrats leverage in the tax bill debates.

Full retirement age (also called “normal retirement age”) had been 65 for many years. However, beginning with people born in 1938 or later, that age gradually increases until it reaches 67 for people born after 1959.

The 1983 Social Security Amendments included a provision for raising the full retirement age beginning with people born in 1938 or later. Congress cited improvements in the health of older people and increases in average life expectancy as primary reasons for increasing the normal retirement age.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2018:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is $63,000 to $73,000, up from $62,000 to $72,000.
• For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $101,000 to $121,000, up from $99,000 to $119,000.
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $189,000 and $199,000, up from $186,000 and $196,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.