The Tax Cut and Jobs Act (TCJA) became law in 2018. It is the first overhaul of the tax code in more than 30 years. In this article, we will mostly look at how this tax law is likely to impact seniors and persons with disabilities.
Generally, retirees will be less affected than others because the changes do not affect how Social Security and investment income are taxed. In fact, many will benefit from the doubling of the standard deduction and, with the new individual tax brackets and rates, will be paying less in taxes when they file their tax returns in April, 2019.
Here are just a few key provisions in the tax law that could affect retirees and persons with disabilities. These provisions are set to expire at the end of 2025 unless Congress acts before then to keep in place.
There are still seven individual tax brackets and rates, but most are lower. Current rates are 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. Here are the new rates and how much income will apply to each:
|Rate||Individuals||Married, filing jointly|
|10%||Up to $9,525||Up to $19,050|
|12%||$9,526 to $38,700||$19,051 to $77,400|
|22%||$38,701 to $82,500||$77,401 to $165,000|
|24%||$82,501 to $157,500||$165,001 to $315,000|
|32%||$157,501 to $200,000||$315,001 to $400,000|
|35%||$200,001 to $500,000||$400,001 to $600,000|
|37%||$500,001 and over||$600,001 and over|
For single filers, the standard deduction is increased from $6,350 to $12,000. For married couples filing jointly, it increases from $12,700 to $24,000. Under the new law, fewer filers would choose to itemize because the standard deduction is so high.
Currently, you can claim a $4,050 personal exemption for yourself, your spouse and each dependent. The new law eliminates these personal exemptions, replacing them with the increased standard deduction.
However, the blind and elderly deduction has been retained in the new law. People age 65 and over (or blind) can claim an additional $1,550 deduction if they file as single or head-of-household. Married couples filing jointly can claim $1,250 if one meets the requirement and $2,500 if both do.
Currently, people with high medical expenses can deduct the portion of those expenses that exceeds 10% of their income. For example, a couple with $50,000 in income and $10,000 in medical expenses can deduct $5,000 of those medical expenses. The new law increases this to medical expenses that exceed 7.5% of income. In the example above, the couple would be able to deduct $6,250 of their expenses.
The new law changes the amount you can deduct for payments of state and local property taxes, income and sales taxes from an unlimited amount to a limit of $10,000.
The new law changes the mortgage interest deduction from a debt cap amount of $1 million to $750,000. If your mortgage is already existing, you would not be affected. The deduction for interest on home equity loans was also eliminated.
Under the new law, parents will be able to take a $500 credit for each non-child dependent they are supporting. This would include a child age 17 or older, an ailing elderly parent or an adult child with a disability.
The new law does not repeal the Federal estate tax, but it eliminates it for almost everyone by doubling the estate tax exemption to $11.2 million for individuals and $22.4 million for married couples. Amounts over these exemptions will be taxed at 40%.
The individual mandate to purchase health insurance is eliminated. Critics, including AARP, claim that eliminating the individual mandate will drive up health care premiums, result in more uninsured Americans and add $1.46 trillion to the deficit over the next ten years, which could trigger automatic spending cuts to Medicare, Medicaid, and other entitlement programs unless Congress votes to stop them.
ABLE accounts were previously established to allow some individuals with disabilities to retain higher amounts of savings without losing their Social Security and/or Medicaid benefits. The new tax law allows money in a 529 education plan to be rolled over to a 529A ABLE account.
Please don’t hesitate to reach out if you have questions about these new provisions and how they may impact you or those you work with. This article does not include all changes made and we recommend consulting the Act itself and/or a CPA with questions you have when filing your tax return.
Article Credit: Elder Counselor Newsletter, Volume 9, Issue 1, January 2018