Important Tax Changes for Individuals and Businesses

Individuals

The tax rate structure, which ranges from 10 to 37 percent, remains similar to 2018; however, the tax-bracket thresholds increase for each filing status. Standard deductions also rise.  Personal exemptions have been eliminated through tax year 2025.

Standard Deduction
Under new tax law, the standard deduction will rise from  $6,350 for the 2017 tax year to $12,000 in 2018 for individuals, and $12,700 to $24,00 for couples.

Alternative Minimum Tax (AMT)
In 2019, AMT exemption amounts increase to $71,700 for individuals (up from $70,300 in 2018) and $111,700 for married couples filing jointly (up from $109,400 in 2018). Also, the phaseout threshold increases to $510,300 ($1,020,600 for married filing jointly). Both the exemption and threshold amounts are indexed annually for inflation.

“Kiddie Tax” 
For taxable years beginning in 2019, the amount that can be used to reduce the net unearned income reported on the child’s return that is subject to the “kiddie tax,” is $1,100.

Health Savings Accounts (HSAs) 
Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent.

A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.

Medical Savings Accounts (MSAs) 
There are two types of Medical Savings Accounts (MSAs): the Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high-deductible health plan (HDHP).

No Penalty for not Maintaining Minimum Essential Health Coverage

Starting in 2019, there is no penalty for not maintaining minimum essential health coverage.

AGI Limit for Deductible Medical Expenses

For 2018, the deduction threshold for deductible medical expenses is 10 percent of adjusted gross income (AGI).

Medicare Taxes 
The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly) remains in effect for 2019, as does the Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,000 joint filers).

Foreign Earned Income Exclusion 
Earned income exclusion amount in 2019  is $105,900, up from $103,900 in 2018.

Long-Term Capital Gains and Dividends
In 2019 tax rates on capital gains and dividends remain the same as 2018 rates (0%, 15%, and a top rate of 20%); however threshold amounts have increased: the maximum zero percent rate amounts are $39,375 for individuals and $78,750 for married filing jointly.

For an individual taxpayer whose income is at or above $434,550 ($488,850 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent. All other taxpayers fall into the 15 percent rate amount (i.e., above $39,375 and below $434,550 for single filers).

Estate and Gift Taxes 
For an estate of any decedent during calendar year 2019, the basic exclusion amount is $11.4 million, indexed for inflation (up from $11.18 million in 2018). The maximum tax rate remains at 40 percent.

Individuals – Tax Credits

Adoption Credit 
In 2019, a non-refundable (only those individuals with tax liability will benefit) credit of up to $14,080 is available for qualified adoption expenses for each eligible child.

Earned Income Tax Credit 
For tax year 2019, the maximum Earned Income Tax Credit (EITC) for low and moderate income workers and working families rises to $6,557, up from $6,431 in 2018. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Child Tax Credit 
For tax years 2018 through 2025, the child tax credit is $2,000 per child. The refundable portion of the credit is $1,400 so that even if taxpayers do not owe any tax, they can still claim the credit. A $500 nonrefundable credit is also available for dependents who do not qualify for the Child Tax Credit (e.g., dependents age 17 and older).

Child and Dependent Care Tax Credit

The Child and Dependent Care Tax Credit also remained under tax reform. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses in 2019. This tax credit is nonrefundable.