Paying federal taxes is a responsibility that all wage earners share. In December 2017, the federal government completed a major overhaul of the US tax code. This new tax code went into effect starting January 1, 2018. There are several major changes to the tax code, which could have a big impact on a wide variety of people.
Personal Exemptions and Standard Deductions
One of the biggest changes for 2018 is the change for personal exemptions and standard deductions. In 2017, you received around $4,000 for each dependent and a standard deduction of around $6,000 for individuals and $12,000 for married couples. Starting with the 2018 tax year, personal exemptions have been eliminated and standard deductions are now $12,000 for an individual and $24,000 for a married couple.
Another big change for the tax code is the change to housing deductions on your tax return. Starting in 2018, mortgage interest that is deducted is limited to interest on the first $750,000 of loan balance, down from $1 million the prior year. Another major change is that state and local taxes, which include property taxes and state income taxes, are now capped at $10,000 in deductions.
Child Tax Credit
For those that have children, there are some significant new benefits. The child tax credit has been increased to $2,000 per child, up from $1,000 per child. Furthermore, the phase out for income for the tax credit now starts at around $400,000. This is a significant increase compared to the prior year when the phase out started around $110,000.
New Tax Brackets
Another big change that came with the new tax code are the new tax brackets. While there are still just as many tax brackets as before, the tax percentages in each category are lower. This should result in a tax savings for many people. The highest tax bracket overall is now 37%, which is compared to 39.6% under the prior tax law.