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Tax Time – Changes Are Coming!

The new tax laws that were passed in late 2017, are the most significant tax changes in the past 30 years.  Most of the changes are effective in 2018 with some starting in later years.  Below is a quick summary of a few of the items that might impact you – as an employee and/or a taxpayer!

Reduced Tax Rates. There are still 7 different tax brackets, but the dollar amounts and percentages for each bracket has changed, illustrated in the table below.

The new brackets, plus the elimination of personal exemptions, will change the withholding table used by your employer to calculate your net paycheck.  The new withholding table will be implemented by employers by February 15, 2018.  So, your January paycheck should look the same, but beginning mid-February, your take home amount will change.

Also, the new laws eliminate all personal exemptions, so the W-4 form you fill out when you start a new job will change.  A new form is not expected until March 2018, so watch for updates.

Increased Standard Deductions. A big change that will impact nearly all taxpayers, are the new amounts for a standard deduction.  For a single filer (or if you are married but filing separately), the deduction has increased from $6,350 to $12,000.  For Head of Household, the deduction has increased from $9,350 to $18,000.  For married couples, the standard deduction has increased from $12,700 to $24,000.

Health Insurance Penalty Removed in 2019.  After January 1, 2019, the mandate for taxpayers to have health insurance or pay a penalty will be eliminated.  The individual penalty for taxpayers that do not carry insurance that provides at least minimum essential coverage will be reduced to zero in 2019, but the penalty is still in effect for 2018.

Changing Child Tax Credit.  The amount of the child tax credit per qualifying child was increased to $2,000.  The refundable amount of the credit is $1,400.  In addition, a nonrefundable amount of $500 for qualifying dependents who are not qualifying children was added.

Disappearing Deductions.  Some items will no longer be deductible under the new laws, including moving expenses, employer-subsidized parking, union dues and tax preparation expenses. In addition, you can no longer deduct expenses incurred on behalf of your job that were not reimbursed by your employer.

Limited State and Local Tax.  The federal deduction for state and local income tax, local property tax, and sales tax is now limited to a total of $10,000.

Medical Expenses.  If your medical expenses unfortunately exceed 7.5% of your adjusted income, they can be deducted.  In previous years, the threshold was set higher at 10 percent of adjusted income.

There are more changes than these, but tax preparation time is a good time to note how these changes will impact you in the future.  Need more info? That’s Good HR has a helpful summarized resource on our website provided by our payroll provider Paylocity.

Please note, this content was written for informational purposes only and TGHR recommends consulting your own tax or accounting professional before filing your taxes.

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