With the passage of the Tax Cuts and Jobs Act (TCJA)The Tax Cuts and Jobs Act in 2017 overhauled the federal tax code by reforming individual and business taxes. It was pro-growth reform, significantly lowering marginal tax rates and cost of capital. We estimated it reduced federal revenue by .47 trillion over 10 years before accounting for economic growth. , many tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. s, thresholds, and rates will change in 2018. Noticeable changes to the structure of the individual taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. code include the elimination of personal exemptions, the elimination of the Pease limitation on itemized deductionItemized deductions allow individuals to subtract designated expenses from their taxable income and can be claimed in lieu of the standard deduction. Itemized deductions include those for state and local taxes, charitable contributions, and mortgage interest. An estimated 13.7 percent of filers itemized in 2019, most being high-income taxpayers. s, and the expansion of the Child Tax CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. .
Additionally, on a yearly basis the IRS adjusts more than 40 tax provisions for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. . This is done to prevent what is called “bracket creepBracket creep occurs when inflation pushes taxpayers into higher income tax brackets or reduces the value of credits, deductions, and exemptions. Bracket creep results in an increase in income taxes without an increase in real income. Many tax provisions—both at the federal and state level—are adjusted for inflation. ,” when people are pushed into higher income tax brackets or have reduced value from credits or deductions due to inflation, instead of any increase in real income.
The IRS used to use the Consumer Price Index (CPI) to calculate the past year’s inflation. However, with the TCJA, the IRS will now use the Chained Consumer Price Index (C-CPI) to adjust income thresholds, deduction amounts, and credit values accordingly. 
Income Tax Brackets and Rates
In 2018, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows (Tables 1 and 2). The top marginal income tax rate of 37 percent will hit taxpayers with taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. of $500,000 and higher for single filers and $600,000 and higher for married couples filing jointly.
|Rate||For Unmarried Individuals, Taxable Income Over||For Married Individuals Filing Joint Returns, Taxable Income Over||For Heads of Households, Taxable Income Over|
Standard DeductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. and Personal Exemption
The standard deduction for single filers will increase by $5,500 and by $11,000 for married couples filing jointly (Table 2).
The personal exemption for 2018 is eliminated.
|Filing Status||Deduction Amount|
|Married Filing Jointly||$24,000|
|Head of Household||$18,000|
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Alternative Minimum Tax
The Alternative Minimum Tax (AMT)The Alternative Minimum Tax (AMT) is a separate tax system that requires some taxpayers to calculate their tax liability twice—first, under ordinary income tax rules, then under the AMT—and pay whichever amount is highest. The AMT has fewer preferences and different exemptions and rates than the ordinary system. was created in the 1960s to prevent high-income taxpayers from avoiding the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. . This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two.
The AMT uses an alternative definition of taxable income called Alternative Minimum Taxable Income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, this exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent.
The AMT exemption amount for 2018 is $70,300 for singles and $109,400 for married couples filing jointly (Table 7).
|Filing Status||Exemption Amount|
|Married Filing Jointly||$109,400|
In 2018, the 28 percent AMT rate applies to excess AMTI of $191,500 for all married taxpayers ($95,750 for unmarried individuals).
Under the TCJA, AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2018, the exemption will start phasing out at $500,000 in AMTI for single filers and $1 million for married taxpayers filing jointly (Table 8.)
|Married Filing Jointly||$1,000,000|
Earned Income Tax Credit
The maximum Earned Income Tax Credit in 2018 for single and joint filers is $520, if the filer has no children (Table 9). The credit is $3,468 for one child, $5,728 for two children, and $6,444 for three or more children. All of these are relatively small increases from 2017.
|Filing Status||No Children||One Child||Two Children||Three or More Children|
|Single or Head of Household||Income at Max Credit||$6,800.00||$10,200.00||$14,320.00||$14,320.00|
|Phaseout Ends (Credit Equals Zero)||$15,310.00||$40,402.00||$45,898.00||$49,298.00|
|Married Filing Jointly||Income at Max Credit||$6,800.00||$10,200.00||$14,320.00||$14,320.00|
|Phaseout Ends (Credit Equals Zero)||$21,000.00||$46,102.00||$51,598.00||$54,998.00|