The next few blog posts will examine the changes that will take place during this new tax year. We hope to provide you with insight whether you’re an individual filer or a business filing taxes. In a total of four blogs, three will examine individual tax changes from deductions, education and retirement, and one will focus on business tax changes.
This blog will examine changes being made to the medical savings accounts, essential health coverage and other forms of income.
Medical Savings Accounts is divided in two types: the Archer MSA designed to help self employed individuals and employees of certain small employers, and the Medicare Advantage MSA, also an Archer MSA, designated by Medicare for the medical expenses of the Medical Savings Account holder. In order to qualify for the Medicare Advantage MSA, one must first be enrolled in Medicare. To participate in either MSA, you must also be enrolled in a high-deductible health plan (HDHP).
For taxable years beginning 2018, for self-only coverage HDHP means that the health plan must have an annual deductible that is no less than $2,300 and no more than $3,450. It also requires that annual out-of-pocket expenses required to be paid for covered benefits do not exceed $8,400. Similar changes are made to the Family coverage, the annual deductible that is no less than $4,600 and no more than $6,850. And the annual out-of-pocket expenses required must not exceed that amount of $8,400 for the year.
Under the new tax plan, the penalty for not having minimum essential health coverage has been eliminated, but will not be in affect until after December 31, 2018. However, in 2018, the deduction threshold for deductible medical expenses has been temporarily reduced to 7.5% from 10% last year, until 2025.
Long-Term care premiums are also subject to changes and limitations. For individuals 40 or younger the premium deductible will be $420 by the end of 2018. Individuals over 40, but younger than 50, can deduct $780. Individuals over 50, but younger than 60, can deduct $1,530. Individuals over 60, but younger than 70, can deduct $4,160. The maximum amount of deduction allowed is $5,200 and only allowed for individuals that are over the age of 70.
For Medicare Taxes, the additional .9% on wages above $200,00 for individuals, and $250,00 for married filed jointly, is still in affect for 2018. The Medicare tax investment percentage is also staying at 3.8% for single taxpayers with modified adjusted gross income of more than $200,000. Investment income includes dividends, interest, rents, royalties, gains from disposition of property and certain passive activity income.
For 2018, foreign earned income exclusion amount has increased from $102,100 to $104,100. Tax rates on capital gains and dividends remain the same from 2017 rates staying at 10, 15, and maxing out at 20 percent; however the threshold amounts might be different, as they don’t correspond to the new tax bracket structure as they did before. For taxpayers in lower tax brackets (10% and 12%), the rate will remain at 0%, but threshold amounts are $38,600 for individuals and $77,200 for married filing jointly tax filers. For taxpayers in the four middle brackets of 22, 24, 32, and 35 percent, the bracket rate is 15%. For an individual taxpayer, in the highest tax bracket is 37%, who is at or more than $425,800 the rate for both capital gains and dividends is capped at 20%, the same cap for taxpayers filing married jointly who are ay $479,000.
Limitations on itemized deductions and personal exemption phase-out have been eliminated by the new tax plan. As for Estate and gift taxes, the basic exclusion amount is $11,200,000, indexed for inflation, and the tax rate remains at 40%. Annual exclusion for gifts has increased to $15,000.
There are multiple changes to keep a track of this tax season. And we’ve dedicated this post and two more in the following weeks to helping you understand the changes.