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New Tax Reforms Under U.S. Tax Law

Last Update Date : April 30, 2019
Estimated Read Time: 8 min

Tax reform is the change in the way taxes are managed or collected by the government and is usually undertaken to improve tax administration or to provide economic or social benefits. Tax reform aims at reducing the complexity of tax laws, making the tax system more progressive and accountable.

Tax Reform for Year 2018-2019

Updated Tax Rates

The revised new tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. They will phase out in eight years.

Standard Deduction Increased

The amount of standard deduction has increased from $6,350 to $12,000 for Single and Married Filing Separate filers, $12,700 to $24,000 for Married Filing Jointly and Widow filers, and $18,000 for Heads of Household in the standard deduction.

Personal Tax Exemption Eliminated

Personal tax exemption has been, replaced with an increase in the standard deduction.

Mortgage Loan Amount Limit Decreased

New homeowners can include mortgage interest paid on up to $750,000 of principal value on a new home in their itemized deductions. It will be back to the original $1 million amount in 2026. Previously, homeowners were allowed to deduct interest paid on mortgages valued up to $1 million on a taxpayer’s principal residence and one other qualified the original $1 million amount in 2026.

Tax Deduction for Charitable Contributions Increased

The limit for charitable cash donations to public charities and many other organizations increases from 50% to 60%.

Increased Child Tax Credit

The Child Tax Credit is being doubled for 2018. It is increased from $1,000 to $2,000 per child (first $1,400 is refundable).
In 2018, the credit will be available to far more households, thanks to a massive rise in the phaseout thresholds. Here’s a quick guide to the Child Tax Credit phaseout thresholds for 2018.

Single: over $2,40,000
Married Filing Jointly: Over $4,40,000
Head Of Household: Over $2,40,000
Married Filing Separately: Over $2,40,000

Additional Tax Credit for Non-Child Dependents

A new $500 tax credit is available for non-child dependents those who are U.S. citizens. The credit can be applied to children above 17 years old, senior parents, or children with disabilities. The Social Security Number (SSN) must be issued and provided to the IRS of the dependents by the due date of a tax return in order to qualify for this credit.

State and Local Tax Deduction Reduced

Deductions for state and local sales, income, and property taxes normally deducted on a Schedule A remain in place but are limited. The amount that you are claiming for all state and local sales, income, and property taxes together may not exceed $10,000 ($5,000 for married taxpayers filing separately).

Medical Tax Deduction Rate Decreased

It is decreased from 10% to 7.5% for 2018 Tax Returns, regardless of age. It will rise back again to 10% in 2019.

Moving Expenses Deduction Eliminated

The Tax Cuts and Jobs Act of 2017 eliminated this deduction for tax years 2018 through 2025, except for members of the military on active duty who move as the result of a military order.

Tax Deduction for Casualty and Theft Loss Removed

These are eliminated from 2018-2025.

Estate or “Death” Tax Doubled

It is doubled from $5.49 million to $11.18 million for single taxpayers. On January 1, 2019, the federal estate tax exemption will slightly increase again to $11,400,000 per individual, or $22,800,000 for married couples, to account for inflation. On December 31, 2025, the doubled amount will get expired.

Eliminated Individual Health Care Tax Penalty

The tax penalty for not having health insurance, this will be eliminated in 2019. It means you have to pay the penalty in 2019 (for 2018 Tax Returns), but not in 2020 (for 2019 Tax Returns).

Roth IRA(Individual Retirement Account) Reconversion Terminated

If you have converted your traditional IRA to a Roth IRA, you can no longer reconvert it back to a traditional IRA.

Gambling Expenses as Deductible Losses Included

If you have a winning amount, then you can continue to deduct gambling losses up to Amount of Total Winnings, on 2017 returns and beyond. The TCJA (Tax Cuts and Jobs Act) did, however, modify the gambling loss deduction, beginning in 2018. For example, if you have incurred $5,000 in losses and have zero winnings, you will get no deduction at all.

Home Office Deduction Abolished

The Taxpayer who is qualified under the old law wrote off their home office deductions on Schedule A. They were only deductible miscellaneous deductions if it, exceeded 2% of your adjusted gross income, but that still was enough to be valuable for employees in many cases. But now that miscellaneous itemized deductions are not allowed anymore, employees don’t have anywhere to claim home office expenses.

Tax Deductions That Remain Unchanged

Earned Income Tax Credit

The taxpayers filing jointly for them the maximum amount is $6,431, also those who have 3 or more qualifying children.

American Opportunity Tax Credit(AOTC)

The American opportunity tax credit (AOTC) is a credit for qualified education expenses for a student for the first 4 years of higher education. Taxpayers who claim the students as dependents, AOTC is also applicable to them. The maximum annual credit of $2500 for a qualified student, 40% or 1000$ can be refunded if you owe no tax. The credit is subject to income restricted.

Student Loan Interest Deduction

Deduction up to $2500 of student loan interest can be qualified per return per year. It can be claimed a deduction from your adjustment income. The student loan interest is paid during the year on a qualified student loan.

Adoption Tax Credit

Tax credit for qualified expenses paid to adopt an eligible child and an exclusion from income from the employer which provides adoption assistance with both are included as a tax benefit for adoption. The credit is non-refundable, so it’s limited to your tax liability for the year. If any credit is in excess of your tax liability may be carried forward for up to five years. For 2017 maximum amount (dollar limit) is $13,570 per child.

Alternative Minimum Tax(AMT)

The Alternative Minimum Tax (AMT) exemption amount for the tax year 2018 for the individual it is $55,400 and begins to phase out at $123,100 ($86,200, for married couples filing jointly for whom the exemption begins to phase out at $164,100). In the year 2017 exemption amount was $54,300 for individuals ($84,500 for married couples filing jointly). For the tax year 2018, the 28 % tax rate applies to taxpayers with taxable incomes above $191,500 ($95,750 for married individuals filing separately).

Tax Deductions for 401K and IRA Retirement Savings Options

401K is a qualified employer-sponsored retirement plan, which means that your employer contributes a set amount if they contribute. Retirement planning is important for your future. IRA (Individual Retirement Account), 401k, are the types of retirement plans which are a future source of income, and contributing to retirement plans can often give you tax benefits.

Capital Gains and Dividend Rates

Qualified dividends and capital gains are subject to a 0% tax rate for taxable income up to $38,600 for single filers and $77,200 for joint filers in 2018.

Investment Interest Expense Tax Deduction

You may qualify for a tax break if you borrow money to purchase an investment. The tax deduction for the interest expense on some loans can be taken if IRS allows the taxpayers by using the Form 4952.

Real Estate Tax Deduction for State and Local Property Up to $10,000

As per 2018 under the new plan, taxpayers who itemize will be able to deduct their real estate tax deduction for state and local property up to $10,000.

Home Office Deduction for Self-Employed Taxpayers

If you are self-employed at home, you may be able to deduct expenses for the business use of your home. If you qualify, then you are eligible to claim the deduction whether you rent or own your home.

New Tax Bracket Changes

As per 2018 tax rates and brackets are as follows:

Single Filers

Taxable IncomeTax Rate
$0 – $9,52510% of taxable income
$9,526 – $38,700$952.50 plus 12% of the amount over $9,525
$38,701 – $82,500$4,453.50 plus 22% of the amount over $38,700
$82,501 – $157,500$14,089.50 plus 24% of the amount over $82,500
$157,501 – $200,000$32,089.50 plus 32% of the amount over $157,500
$200,001 – $500,000$45,689.50 plus 35% of the amount over $200,000
$500,001 or more$150,689.50 plus 37% of the amount over $500,000


Married Filing Jointly or Qualifying Widow(er)

Taxable IncomeTax Rate
$0 – $19,05010% of taxable income
$19,051 – $77,400$1,905 plus 12% of the amount over $19,050
$77,401 – $165,000$8,907 plus 22% of the amount over $77,400
$165,001 – $315,000$28,179 plus 24% of the amount over $165,000
$315,001 – $400,000$64,179 plus 32% of the amount over $315,000
$400,001 – $600,000$91,379 plus 35% of the amount over $400,000
$600,001 or more$161,379 plus 37% of the amount over $600,000


Married Filing Separately

Taxable IncomeTax Rate
$0 – $9,52510% of taxable income
$9,526 – $38,700$952.50 plus 12% of the amount over $9,525
$38,701 – $82,500$4,453.50 plus 22% of the amount over $38,700
$82,501 – $157,500$14,089.50 plus 24% of the amount over $82,500
$157,501 – $200,000$32,089.50 plus 32% of the amount over $157,500
$200,001 – $300,000$45,689.50 plus 35% of the amount over $200,000
$300,001 or more$80,689.50 plus 37% of the amount over $300,000


Head of Household

Taxable IncomeTax Rate
$0 – $13,60010% of taxable income
$13,601 – $51,800$1,360 plus 12% of the amount over $13,600
$51,801 – $82,500$5,944 plus 22% of the amount over $51,800
$82,501 – $157,500$12,698 plus 24% of the amount over $82,500
$157,501 – $200,000$30,698 plus 32% of the amount over $157,500
$200,001 – $500,000$44,298 plus 35% of the amount over $200,000
$500,001 or more$149,298 plus 37% of the amount over $500,000

What are Marginal Tax Rates and Brackets?

In 2018 One of the changes in tax reform bills also involves income tax brackets and marginal tax rates.
Marginal Tax brackets are specific ranges of income along with their corresponding tax rates whereas marginal tax rates are rates which are applied to different levels of income, i.e. the higher the income, the higher is the tax rate.

Which means that your income is not taxable on one rate, but at a different rate that is depending on your income.

For example, if your income is $120,000, your tax rate is not a flat 50%. So, you are taxed on the first $20,000 as 10%, and the next $20,000 as 20% and so on, according to the below chart. So instead of paying $60,000 in taxes ($120,000 x 50%), a taxpayer with $120,000 income would pay $38,000 in income tax.
For 2018, almost all of the marginal tax rates have been cut, and the tax brackets have been shifted. Which means in 2018 everyone will have lower income tax rates (on the same income).

As per the below 2018 marginal tax rates comparison.
“A” taxable income of $100,000 in 2018
(11,500 x 0.24) + (45,800 x 0.22) + (31,175 x 0.12) + (11,525 x 0.10).
=$2760 =$10076 =$3741 =$1152.50
“A” Will pay $17,729.50 as taxes.

In the 2017 tax thresholds, some of the married filers were moved into a higher income bracket when the spouses combined their income so to overcome the higher tax bracket, the new brackets double for joint filers, so in 2018 to avoid any marriage penalty is effectively removed.

2018 Marginal Income Tax Rates and Brackets

2018 Marginal Tax RatesSingle 2018 Tax BracketMarried Filing Jointly 2018 Tax BracketHead of Household 2018 Tax BracketMarried Filing Separately 2018 Tax Bracket
10%$0 – $9,525$0 – $19,050$0 – $13,600$0 – $9,525
12%$9,525 – $38,700$19,050 – $77,400$13,600 – $51,800$9,525 – $38,700
22%$38,700 – $82,500$77,400 – $165,000$51,800 – $82,500$38,700 – $82,500
24%$82,500 – $157,500$165,000 – $315,000$82,500 – $157,500$82,500 – $157,500
32%$157,500 – $200,000$315,000 – $400,000$157,500 – $200,000$157,500 – $200,000
35%$200,000 – $500,000$400,000 – $600,000$200,000 – $500,000$200,000 – $300,000
37%Over $500,000Over $600,000Over $500,000Over $300,000

People Also Ask

Q. Does tax reform affect my 2017 taxes?

A. It is one of the biggest tax reform legislation for three decades. The bill will affect the taxes of most taxpayers in 2018, but for most of the people, the bill won’t affect your taxes for 2017 (that you file in 2018).

Tax reform is the change the way taxes are managed or collected by the government and is usually undertaken to improve tax administration or to provide economic or social benefits.

How H&R Block can help you?

H&R Block is the global leader in the Income Tax filing services domain. Get your U.S. Expat tax filing done by our tax experts who will help you understand your tax modalities, prepare your return and file it online.

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Anshu Jain
Anshu Jain is the Manager, Offshore Operations at H&R Block (India). She holds an MBA in Finance and has an experience of over ten years in business operations, U.S. tax advisory and program management. When she is not working, Anshu enjoys reading and writing about U.S. taxation.

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