Story source: Andrew Zumwalt, 573-884-1690
COLUMBIA, Mo. – The year of offsetting changes. That is how Andrew Zumwalt describes tax year 2018.
“Tax law changes removed exemptions—the deduction from income for claiming people on a tax return—but the law also almost doubled the standard deduction,” he says. For example, a single person had a 2017 standard deduction of $6,350. For 2018, the standard deduction is $12,000.
The removal of exemptions is also offset by the doubling of the Child Tax Credit from $1,000 to $2,000. For families with children under 17 who meet additional requirements of residency, relationship and support, this can more than offset the loss of claiming the exemption. The income limits for the Child Tax Credit have also increased. For 2017, the Child Tax Credit started phasing out at $110,000 of income for a married couple filing jointly. In 2018, the start of the Child Tax Credit phaseout has increased to $400,000 of income.
If you have a dependent who is ineligible for the Child Tax Credit, often because the dependent is over age 16, then you are now eligible for the Credit for Other Dependents. This $500 credit helps to offset the loss of claiming an exemption. Common dependents eligible for the Credit for Other Dependents would be older children, parents, friends or companions who meet the rules for qualifying relative or qualifying child if older than age 16.
The 1040-A and 1040-EZ forms have been replaced with a shortened 1040 that draws from the new Schedules 1-6, Zumwalt says. “It appears that the IRS took a scalpel and cut out sections of the old 1040 and moved the cut lines to the new schedules. In many cases, the new schedules are still using the line numbers from the old 1040.”
With all of the changes to the tax law, taxpayers might be surprised that a familiar tax penalty is still around. “The penalty for not having health insurance is still in force for tax year 2018,” he says. “The law changed the penalty amount to $0 for tax years that start after Jan 1, 2019.” If you did not have health insurance and you don’t qualify for an exemption, then you will have to pay a penalty.
The law made many more changes that could affect Missouri families. IRS Publication 5307, “Tax Reform Basics for Individuals and Families,” provides a quick summary of many of the changes. You can download the 14-page document at IRS.gov/getready.