Tax Cuts & Jobs Act

In 2017, Congress passed the largest piece of tax reform legislation in more than three decades. As a result of the Tax Cuts and Jobs Act (TCJA), there are some big changes to tax law for 2018 taxes. Almost all taxpayers will be impacted by the changes and there’s a lot of information to digest so we asked our Financial Well-being experts to help us break things down.

February 20 Update: We have created a short info sheet with tips and news related to filing your taxes at the state and federal level. Click here to view the sheet.

Taxable income is calculated as gross income less any adjustments less either the sum of itemized deductions or the standard duction, whichever is larger. TCJA brings new tax brackets which determine the amount of tax paid as a result of your taxable income.

Click here to see the new tax brackets.

A taxpayer will either use the standard deduction based on filing status or itemized deductions to help lower their income, whichever is higher. Things to itemize include mortgage interest, state and local income or sales tax, property tax on home and/or car, charitable contributions and more.

An exemption is a dollar amount ($4,050 in tax year 2017) you can subtract from your Adjusted Gross Income (all sources of income less any adjustments) to reduce the amount of income on which you will be taxed.

There are two types of exemptions: dependent (a person, such as a child, other the the taxpayer or spouse) and personal (taxpayer or spouse). Exemptions are still around, they just aren’t worth anything. The exemption amount under the new tax reform bill is now zero.

Taxpayers will still need to determine the number of dependents to claim because they continue to relate to other tax benefits, such as head of household filing status, education credits and other credits.

Before TCJA, the Child Tax Credit was worth up to $1,000 per qualifying child (under age 17). It was also refundable for taxpayers with earned income of at least $3,000 and phased out for taxpayers with adjusted gross income above $75,000 ($110,000 for joint filers).

After TCJA, the following new rules exist for the Child Tax Credit:

  • The Child Tax Credit under 2018 reform is worth up to $2,000 per qualifying child.
  • The refundable portion of the credit is limited to $1,400. This amount will be adjusted for inflation after 2018.
  • The earned income threshold for the refundable credit is lowered to $2,500.
  • The beginning credit phase out for the Child Tax Credit increases in 2018 to $200,000 ($400,000 for joint filers).
  • The child must have a valid social security number to qualify for the $2,000 Child Tax Credit.
  • There is a new $500 credit for a dependent who does not qualify for the Child Tax Credit/Additional Child Tax Credit.

On top of all the other changes, a new 1040 will debut this filing season in a postcard size which will replace the current 1040, 1040A and 1040EZ. It is designed to simplify filing tax returns but the 1040 also comes with six new schedules.

Help! I’m confused!

Taxes are often confusing, particularly when there have been changes in the tax code for the first time since 1986. Most of us are responsible for paying taxes that we either pay ourselves or through our paychecks using a W-4 form. This form tells your employer how much tax to withhold from your paycheck and send directly to the IRS and the state. Your withholdings pay part of your annual income tax.

With all the changes discusses above as a result of the Tax Cuts and Jobs Act, the IRS is encouraging everyone to do a paycheck check-up to make sure they have the right amount of tax taken out of each paycheck for their situation. Visit the withholding calculator to do your own check-up.

United Way’s Tax Assistance Programs

United Way offers two programs that provide free tax assistance for low- to moderate-income families and individuals.

  • Our Volunteer Income Tax Assistance programs offers free tax preparation for families and individuals with income of $55,000 or less. Tax prep sites are located throughout the Greater Richmond & Petersburg region.
  • MyFreeTaxes is a free, safe and easy way for individuals and families to file their taxes online. The program is available to anyone with a household income of $66,000 or less in 2018.
Learn More

Click here to learn more about United Way’s Volunteer Income Tax Assistance program and email April Wilson to get involved.

More Information

Want to learn how the new tax law will impact charitable giving? Take a look at this informational guide.

The IRS put together a document that goes in-depth about the all the tax reform changes this year. Check it out.