A Refresher On What the Tax Cuts and Jobs Act Changed

The Tax Cuts and Jobs Act (TCJA) became official in late December 2017. The most substantial overhaul of the tax code in three decades, the TCJA cut taxes for individuals and businesses starting in 2018.

Even in 2020, the changes this act made to our tax code are a lot to remember, especially since some things changed while others stayed the same. Here is your refresher on all the Tax Cuts and Jobs Acts changed (and what it didn’t change).

A shiny new 1040 form

This is a relatively new change, released just in time for the 2019 filing season. It’s the same old Form 1040 we know and love, but it has a fresh look. It has a larger type and features other visual changes that will help visually impaired filers.

Another helpful tidbit: the IRS included the chart of standard deductions on the form, so you don’t have to look it up.

If you aren’t into these changes, don’t worry. You still have a choice between the new 1040-SR and the classic 1040.

What did the TCJA change with tax brackets?

The Tax Cuts and Jobs Act changed a few things about income tax brackets and marginal tax rates, though some things stayed the same.

• While there are still seven brackets, the rates changed. 
• Income thresholds are now higher, even more so in the higher brackets.
• The tax brackets for 2019 are adjusted for inflation for the 2020 filing season.
• In general, taxes were reduced. However, the minimum tax rate stayed at 10%.

Let’s break down the new rates.

The 10% bracket, the lowest, applies to those with a taxable income of up to $9,875 (for singles) or $19,750 (for married persons filing joint returns and qualifying widows/widowers). The following tax brackets are 12%, 22%, 24%, 32%, and 35%, with the highest being 37%.

The 12% bracket applies to those with taxable income between $9,876 and $40,125 (for singles) or between $19,751 and $80,250 for joint filers. 

The next bracket nearly doubles to 22%. The 22% bracket is for those with income between $40,126 and $85,525 (for singles) or between $80,251 and $171,050 (for joint filers).

The 24% bracket is for those with income between $85,526 and $163,300 (for singles) or between $171,051 and $326,600 (for joint filers). 

The next bracket jumps to 32%, applying to those with an income between $163,301 and $207,350 (for singles) or between $326,601 and $414,700 (for joint filers).

The 35% bracket applies to those with income between $207,351 and $518,400 for singles or between $414,701 and $622,050 for joint filers. 

The top bracket of 37% applies to singles with taxable incomes above $518,401 and joint filers with incomes above $622,051.

What did the TCJA change with annual adjustment calculations?

The main change to be aware of in annual adjustment calculations is that the IRS now uses the “chained” consumer price index. The chained CPI is based on the idea that, when prices of different goods change at different rates, consumers will adjust their purchasing patterns by purchasing more less-expensive products.

This kind of index grows more slowly than previous ones, meaning taxes won’t increase as quickly. Over time, this subtle change adds up for some nice savings.

What did the TCJA change with the standard deduction?

In short, the standard deduction got bigger. Let’s break it down.

• For single filers, the standard deduction increased from $6,500 to $12,000. That’s nearly double! 
• Heads of households saw their deductions rise from $9,550 to $18,000.
• Married joint filers saw a jump from $13,000 to $24,000 in 2018, and then to $24,400 in 2019!

What about child tax credit?

If the bigger standard deduction wasn’t enough, the IRS also doubled the child tax credit! Here’s what you need to know.

• The child tax credit doubled to $2,000 per qualifying child under 17.
• Up to $1,400 of that is refundable, even if you don’t owe any taxes. 
• Income phase-out thresholds are greatly increased with TCJA, meaning more taxpayers will get the break than before.

Keep in mind that credits and deductions are different. Deductions deduct the income that can be taxed while credits reduce the number of tax dollars you pay. Usually, credits save you more than deductions. 

The 529 College Savings Plan

With the Tax Cuts and Jobs Act, the 529 College Savings Plan now applies to the funding education at levels other than college. That means you may be able to use your 529 to help fund sending your child to private high school.

Changes to the Alternative Minimum Tax (AMT)

Though the Alternative Minimum Tax ensures that taxpayers pay at least the minimum, it’s a whole other ballgame with a whole different tax structure. There are some changes to the AMT, thanks to the TCJA, that might help despite losing some tax breaks you may have qualified for without AMT.

• The AMT is now indexed for inflation, making it overall fairer.
• The AMT amounts and phase-out limits are now much higher. For married couples filing jointly, phase-outs rose from $160,900 in 2017 to $1 million in 2018.

Need help navigating the often confusing landscape of taxpaying?

Peter B. Scala, CPA can help. As a Certified Public Accountant licensed in New York State with nearly 25 years of public accounting experience, he has a wealth of knowledge to help you get through your taxes, business finances or other accounting needs. And his experience is diversified in many facets of accounting, including outsourced Chief Financial Officer and Controllership services for small and mid-sized businesses and organizations. 

If you need assistance in any of the following areas, please do not hesitate to contact Peter B. Scala today!

• Outsourced Chief Financial Officer/Controller Services
• Financial Statement Services
• Tax Services