The IRS has released inflation adjustments on more than 50 changes to tax provisions and rate schedules for tax year 2018, including minimal increments on personal exemptions and exclusion of income earned abroad.
Revenue Procedure 2017-58 describes the changes in detail. (Note to tax professionals: The inflation adjustments generally are small increases.) The adjustments affect tax returns to be filed in 2019.
The IRS issued the following list of tax items for 2018 that the agency believes are of the most interest to taxpayers:
- The standard deduction for married taxpayers filing jointly will go up $300, to $13,000. For single taxpayers and married individuals filing separately, the standard deduction goes up $150, to $6,500 in 2018. For heads of households, the standard deduction will rise $200, to $9,550 for tax year 2018.
- The personal exemption will go up $100, to $4,150. 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 are described in the revenue procedure.
- The limit on itemized deductions claimed in tax year 2018 for 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). 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 maximum Earned Income Credit amount will be $6,444 for taxpayers filing jointly who have three or more qualifying children, an increase of $126 from tax year 2017.
- The monthly limitation for the qualified transportation fringe benefit and for qualified parking will be $260.
- For calendar year 2018, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage remains at $695.
- Participants who have coverage only for themselves in a Medical Savings Account must have a plan that has an annual deductible not less than $2,300 (an increase of $50 from tax year 2017) but not more than $3,450, an increase of $100 from tax year 2017. For self-only coverage, the maximum out-of-pocket expense amount is $4,600, up $100 from 2017. For participants with family coverage, the lowest annual deductible will be $4,600, up $100. But the deductible can’t exceed $6,850, up $100 from the 2017 limit. For family coverage, the out-of-pocket expense limit is $8,400 for tax year 2018, an increase of $150.
- The adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $114,000, up $2,000.
- The foreign earned income exclusion is $104,100, up $2,000.
- Estates of people who die during 2018 have a basic exclusion amount of $5.6 million, up from $5.49 million.
- The annual gift exclusion will rise $1,000, to $15,000.