It’s time to start thinking about your 2018 taxes.
I know. It’s a crazy thought. You probably haven’t even started working on your 2017 taxes yet. However, with the most sweeping tax law changes in 30 years now in effect for 2018, it would be a good idea to run some numbers and make sure you’re having the proper amount withheld from your paycheck or making appropriate estimated quarterly payments.
Here’s a summary of some of the biggest changes, along with other related changes such as 2018 retirement plan and health savings account contribution limits.
New 2018 brackets
There are still seven brackets, but the tax rates have been lowered. Here are the new parameters:
Singles
Taxable Income | Tax Due |
0 - $9,525 | 10% of taxable income |
$9,526 - $38,700 | $952.50 + 12% of the amount over $9,525 |
$38,701 - $82,500 | $4,453.50 + 22% of the amount over $38,700 |
$82,501 - $157,500 | $14,089.50 + 24% of the amount over $$82,500 |
$157,501 - $200,000 | $32,089.50 + 32% of the amount over $157,500 |
$200,001 - $500,000 | $45,689.50 + 35% of the amount over $200,000 |
$500,001+ | $150,689.50 +37% of the amount over $500,000 |
Married Filing Jointly
Taxable Income | Tax Due |
0 - $19,050 | 10% of taxable income |
$19,051 - $77,400 | $1,905 + 12% of the amount over $19,050 |
$77,401 - $165,000 | $8,907 + 22% of the amount over $77,400 |
$165,001 - $315,000 | $28,179 + 24% of the amount over $165,000 |
$315,001 - $400,000 | $64,179 + 32% of the amount over $315,000 |
$400,001 - $600,000 | $91,379 + 35% of the amount over $400,000 |
$600,001+ | $161,379 +37% of the amount over $600,000 |
Exemptions
Personal exemptions of $4,050 per family member, which still apply for your 2017 taxes, will disappear for your 2018 taxes.
Deductions
The 2017 standard deduction of $6,350 for single people and $12,700 for married couples filing jointly increases sharply to $12,000 for singles and $24,000 for couples in 2018.
2018 also brings a new $10,000 cap on deductions for state and local income taxes, real estate taxes, and property taxes; a $750,000 mortgage cap in order to deduct interest on loans taken after December 15, 2017; and the elimination of a deduction for interest on home-equity loans.
Credits
The 2017 child tax credit of $1,000 per qualifying child doubles to $2,000 in 2018. Many more families will qualify for it as well, since the income limits on who can claim it increase from $75,000 to $200,000 for singles and from $110,000 to $400,000 for couples.
Capital gains and dividends
Short-term capital gains (gains on investments held for one year or less) and non-qualified dividends will continue to be treated as ordinary income and taxed according to the seven new tax brackets mentioned above.
There will continue to be three tax rates for long-term capital gains, which apply to gains on investments held for more than one year, and for qualified dividends. However, they will no longer map onto the seven tax brackets. Instead, here are the 2018 taxable income levels they apply to.
L-T Capital Gains and Qualified Dividends Rate | Singles | Married Filing Jointly |
0% | ||
15% | $38,600 - $425,800 | $77,200 - $479,000 |
20% | >$425,800 | >$479,000 |
Retirement plan contributions
If you participate in a 401(k), 403(b), 457(b) or the federal government’s Thrift Savings Plan, you can contribute $18,500 in 2018—$500 more than in 2017. Participants age 50 or older can add another $6,000 in "catch-up contributions" — the same as in 2017.
Those contributing to an IRA are limited to the same $5,500 maximum that was in place for 2017. People age 50 and older can add another $1,000 — again, the same as in 2017.
Health savings account contributions
For those with a high-deductible health insurance plan, singles can save a tax-deductible $3,450 in 2018 in a health savings account — $50 more than in 2017. Families can save $6,900—up from $6,750 in 2017. If you are 55 or older, or will turn 55 in 2018, you can save an additional $1,000 — unchanged from 2017.
In order to be able to use a health savings account, your health insurance deductible must be at least $1,350 for singles and $2,700 for families — up slightly from 2017.
If you’re eligible to contribute to a flexible spending account where you work, the IRS has increased the 2018 contribution limit to $2,650 from $2,600.
