These next couple of blog posts will continue to 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 your individual tax credits, education credits and loans, and individual retirement limits and credits.
Child and dependent care credit remain under the new tax reform. If you pay someone for the care of a dependent, defined by being under the age of 13 at the end of the taxable year or someone incapable of self-care. If you pay for the care of the defendant, in order to work or find work, you may qualify for a credit of up to $1,050 or 35% of $3,000. If you have two or more dependents, than you can claim up for 35% of $6,000 of eligible expenses. For individuals with higher incomes credit percentages is reduced, but not lower than 20% regardless of adjusted gross income.
Child Tax Credit also increases to $2,000 per child, from $1,000 in 2017, but only for the tax years of 2018 through 2025. Adoption Credit is available for qualified individuals with tax liability; a credit of up to $13,840 is available for qualifying adoption expenses for each eligible child.
For 2018 the maximum earned income tax credit for low and moderate income workers and working families has increased to $6,444, from $6,318 in 2017. Credit will vary from family size, filing statues and other factors, with the maximum credit amount going to joint filers with three or more qualifying children.
The American Opportunity Tax Credit has been extended to the end of 2018 by ATRA, but was made permanent by PATH in 2017. Under the new Tax law there was no change. The maximum tax credit per student is $2,500. The Lifetime learning credit remains at $2,000 per return; the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $114,000, up from $112,000 for the tax year of 2017.
For interest on educational loans, the $2,500 maximum deduction for interest paid on loans is no longer limited to the first 60 months of repayment. The deduction is phased out for high-income taxpayers with a modified AGI of more than $65,000 or $135,000 joint filers.
Retirement contribution limits will also see increases. For employees who participate in 401(k), 403(b), and most 457 plans. The federal government’s Thrift savings plan increases to $18,500. Contribution limits for SIMPLE plans remain at $12,500. Maximum compensation used to determine contributions has increased to $275,000, from $270,000 in 2018.
The deduction for taxpayers making a contribution to a traditional IRA is phased out for singles and heads of household who have coverage from an employer-sponsored retirement plan and have modified AGI between $63,000 and $73,000, from $62,000 to $72,000. For married couples that are filing jointly, the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the range of phase out is increased to $101,000-$121,00, from $99,000 to $119,000.
For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is, the phase is of $189,000 to $199,000. The range of phase out for a married individual filing separately remains at $0 to $10,000 for those making contributions to the Roth IRA.
For Saver’s Credit, the AGI limit for low and moderate income workers is $63,000 who are married couples filing jointly, increased from $62,000 in 2017. The limit for head of household is up from $46,500 to $47,250. There is also an increase for married individuals filing separately and single filers to $31,500, from $31,000.
There are so many changes to keep a track of this tax season, and we’re dedicated to help you understand how every change affects you as a tax filer. This is the third of four posts dedicated to do just that, next week we’ll talk about the changes for Business taxes.