Your tiny addition to the family means you have a new dependent to account for when you file your taxes. If you claimed a child before The Tax Cuts and Jobs Act took effect, you’ll need to know what’s different for tax year 2018. The new tax laws brought big changes to income tax rates, deductions, credits, and exclusions. Here’s a look at the differences new parents can expect in 2018.
Federal Income Tax Brackets
The Tax Cuts and Jobs Act changed the federal income tax rates and brackets. Below are the rates in 2017 compared to 2018 for taxpayers who filed as married as well as those who filed single. Click here for a complete look at the tax brackets and rates for all filing statuses.
Before Tax Reform (2017): If your tax status was married filing jointly in 2017, your income tax rates looked like this:
|10%||Up to $18,650|
|15%||$18,651 – $75,900|
|25%||$75,901 – $153,100|
|28%||$153,101 – $233,350|
|33%||$233,351 – $416,700|
|35%||$416,701 – $470,700|
|39.6%||$470,701 and up|
If you filed separately in 2017, the income thresholds were as follows:
|10%||Up to $9,325|
|15%||$9,326 – $37,950|
|25%||$37,951 – $76,550|
|28%||$76,551 – $116,675|
|33%||$116,676 – $208,350|
|35%||$208,351 – $235,350|
|39.6%||$235,351 and up|
After Tax Reform (2018): The tax brackets for tax year 2018 have changed for all filing statuses. The income range in each bracket has expanded, and the rates have dropped across the board. Tax rates for married filing joint now look like this:
|10%||Up to $19,050|
|12%||$19,051 – $77,400|
|22%||$77,401 – $165,000|
|24%||$165,001 – $315,000|
|32%||$315,001 – $400,000|
|35%||$400,001 – $600,000|
|37%||$600,001 and up|
If you are married filing separately, your rates are as follows:
|10%||Up to $9,525|
|15%||$9,526 – $38,700|
|25%||$38,701 – $82,500|
|28%||$82,501 – $157,500|
|33%||$157,501 – $200,000|
|35%||$200,001 – $300,000|
|39.6%||$300,001 and up|
Child Tax Credit
Before tax reform (2017): If your child met all the eligibility requirements, you might have taken a Child Tax Credit worth $1,000. You had to earn a minimum of $3,000 to take the credit and it began to phase out if your modified adjusted gross income (MAGI) was greater than $110,000 ($55,000 for married filing separately and $75,000 for singles). For every $1,000 you earned above the threshold, the credit was reduced by $50.
The credit was non-refundable, so it could have brought your tax bill to $0, but any remaining unused credit would not have come back to you in your refund.
After tax reform (2018): The TCJA increased the value of the Child Tax Credit to $2,000 for each qualifying child. It also changed the eligibility requirements, so your dependent must now have a SSN for you to claim the credit. Read more about who is eligible for the Child Tax Credit under the TCJA.
The minimum income threshold was lowered to $2,500, and it only begins to phase out when your MAGI reaches $400,000 ($200,000 for single filers). This opens the credit up to more taxpayers. You may be eligible for it now even if you couldn’t claim the credit last year.
The Tax Cuts and Jobs Act did more than increase value of the Child Tax Credit. It also made the credit refundable. To be exact, the refundable portion is equal to 15% of your earned income over $2,500 up to $1,400.
The Personal Exemption
Before tax reform (2017): The personal exemption allowed you to reduce your taxable income by $4,050 for yourself and each dependent you claimed on your tax return. If you had a baby before 2018, you would have been able to take the exemption for your child, yourself, and your spouse, for example.
After tax reform (2018): The personal exemption has been eliminated by the Tax Cuts and Jobs Act. If you had a new baby in 2018, you will not be able to take the personal exemption for them or for any other dependents in your household.
The standard deduction
Before tax reform (2017): The standard deduction for tax year 2017 (the return you filed in 2018) was $12,700 if you were married filing jointly ($6,350 if you filed separately or were single, and $9,350 as head of household)
After tax reform (2018): The new tax laws almost doubled the standard deduction for years 2018-2025. If you are married filing jointly, you can claim $24,000 for the standard deduction. If you are filing separately or single, that amount is $12,000. It is $18,000 if your status is head of household.
Unreimbursed medical expenses
Before tax reform (2017): You could deduct qualified medical expenses over 7.5% of your adjusted gross income. These included surgeries, prescription medicine, and even travel expenses like mileage and parking fees to seek care. Any expenses that were paid for by your insurance or employer were not part of the deduction.
After tax reform (2018): The deduction for unreimbursed medical expenses is the same for tax year 2018 (the return you will file in 2019). But beginning Jan. 1, 2019, the threshold increases to 10% of your adjusted gross income.
Note: you must itemize your deductions to claim the medical expenses deduction. If you take the standard deduction, this write-off will not apply to your return.
529 Savings Plan
As new parents, you may be planning for college. The 529 is a tax-advantaged savings plan for education expenses. There are two types of 529: prepaid tuition plans or education savings plans. Contributions to a 529 are not tax-deductible, but investments can grow within the plan tax-free.
Before tax reform (2017): Under the previous tax code, withdrawals from a 529 savings could only be used to pay for qualifying higher education expenses (tuition, room and board, fees for college or university). Otherwise, they were subject to federal tax penalties.
After tax reform (2018): Under the new tax law, you may be allowed to withdraw up to $10,000 for tuition and expenses for grades K-12. Note: the new expanded policy is not a federal law. It only applies in states where tuition for grades K-12 is considered a qualifying expense.
Did you also buy a home for your growing family? Learn about the tax law changes affecting homeowners.
Babies get expensive! Did you also pick up a side gig in 2018? Here’s what tax reform means for the self-employed.
This post is up to date for tax year 2018 (returns filed in 2019).