We’ve compiled a list of the most frequently asked questions concerning the new individual tax laws under the Tax Cuts and Jobs Act (TCJA).
Individual Tax Changes
Q: How soon will people see the changes in their paychecks from the new tax rates?
A: Employees should begin to see withholding changes in their checks in February. The exact timing depends on when their employer can make the change and how often they are paid. It typically takes payroll providers and employers about a month to update withholding changes on their systems. (This answer is directly from the IRS website: https://www.irs.gov/newsroom/irs-withholding-tables-frequently-asked-questions)
Q: What’s new with the child tax credit?
A: The new tax law increases the child tax credit to $2,000 per qualifying child under the age of 17 (up from $1,000). The maximum amount of this credit that is refundable is $1,400 per qualifying child. There is also a new $500 nonrefundable credit for qualifying dependents other than qualifying children (children 17 or older and still your dependent or others such as a parent).
Q: Can I use a 529 Account for my child to attend private school?
A: Yes! This bill modifies section 529 plans to allow such plans to distribute up to $10,000 for tuition expense per year, per child, to attend a public, private or religious elementary or secondary school.
Q: What happened to the standard deduction?
A: The standard deduction was almost doubled to $24,000 for married filing jointly, $12,000 for single filers. Therefore, you will need over these amounts in order to itemize your deductions.
Ex: If you were married and had $20,000 of itemized deductions last year, you would not itemize under the new law. Instead of having $20,000 in deductions, you will get a $24,000 standard deduction, and you won’t have to keep up with all the information!
Q: What happened to the personal exemptions?
A: The personal exemption of $4,050 per individual claimed on a tax return has been repealed.
Q: Will my state tax deduction be limited?
A: Your federal deduction for the total of your state income tax, real estate taxes and personal property taxes is limited to the lessor of actual or $10,000.
Q: Can I still deduct miscellaneous expenses, such as unreimbursed business expenses, investment advisor expenses, and tax preparation fees on Schedule A?
A: No, you cannot. Under the new law, all miscellaneous deductions that were subject to the 2% AGI floor are no longer deductible. This includes job search expenses, investment fees and expenses, tax preparation fees, unreimbursed employee business expenses, office supplies and home office expenses
Q: If I am losing all these deductions, this tax bill is bad for me, right?
A: Not necessarily! In preliminary calculations, we have seen multiple scenarios where an individual’s taxable income does increase, but because the tax rates have gone down, many people with a higher taxable income still pay less in taxes.
Q: Can I still deduct the interest that I pay on my Student Loans?
A: Yes! The original House proposal had a provision that repealed the deduction for student loan interest, but this provision was not present in the final bill.
Q: Is there still a penalty for not having health insurance for all 12 months of the year?
A: No! Starting in 2019, there is no more penalty for not having health insurance.
Q: Were there any changes to the estate tax?
A: Yes, the provision doubles the estate and gift tax exemption amount from $5 million to $10 million.