Many of the changes to the tax code from the recently passed Tax Cuts and Jobs Act (TCJA) are taking effect in 2018 – which could impact your finances in a big way. Maybe you’ve already noticed a change in your take-home pay, or maybe you’ve heard about how the standard deduction has nearly doubled. The TCJA is the biggest change to the American tax code in 30 years – and its purpose is to benefit the majority of hardworking Americans.
But which parts of this law can make your taxes go up? Here’s a quick look at how tax reform is affecting parents, workers, and people who pay high property taxes.
While there aren’t a lot of provisions in the tax reform law that will affect taxes for parents and families, there is one major change to the rules about exemptions for children and dependents: If you have two or more children, you could end up paying more income tax due to the loss of exemptions that are not covered by the new, bigger standard deduction amounts. However, you might still benefit from the changes to the Child Tax Credit and the Additional Child Tax Credit – the amount increased to $2,000 (from $1,000), the credit is refundable up to $1,400, and the income limits are now $400,000 for joint filers and $200,000 for all others (up from $110,000 for joint filers, $55,000 for Married Filing Separately and $75,000 for all others) – as well as the new, $500 Credit for Other Dependents.
The biggest change for workers has to do with Employee Business Expenses – work-related expenses you aren’t reimbursed for, or are only reimbursed for up to a certain limit. Before tax reform, if you chose to itemize deductions, you could deduct unreimbursed expenses related to your job from your taxable income. This meant you could deduct common business expenses, like travel and supplies, to the extent these things exceeded 2% of your Adjusted Gross Income (AGI). The Tax Cuts and Jobs Act eliminated this rule, along with the ability to itemize other miscellaneous deductions that exceeded the 2% AGI floor. This is a big change for employees who have large amounts of business expenses that aren’t reimbursed or are only partially reimbursed, like truck drivers and outside salespeople, for example. It is important to note that the impact of this change might be offset by the new, almost-doubled standard deduction, which many more American workers will likely now claim. However, the substantial increase in the standard deduction – now $24,000 for Married Filing Joint filers and Qualified Widows, $18,000 for Head of Household, and $12,000 for Single and certain Married Filing Separately filers (from $12,600, $9,350, and $6,300 respectively) – means many taxpayers no longer benefit from itemizing deductions and will claim the much higher standard deduction.
It’s also worth noting that if you live in a state with unusually high income or property taxes – like New Jersey, New York, or California, for example – and you paid more than $10,000 in these types of taxes last tax year, your itemize deductions may decrease due to the new $10,000 limit. The limit is based on the total of your real and personal property taxes and the state and local income or sales taxes combined which are then limited to $10,000. If your total allowed tax bite is greater than $10,000, you could see a reduction in total itemized deductions.
Outside of tax reform, there are some other key reasons your taxes might increase:
Don’t worry if this is overwhelming. Jackson Hewitt Tax Pros are here to help make sense of the changes. Make an appointment today.