December 20 was a big day in Washington and across the country with the passage of the federal Tax Cuts and Jobs Act. The controversial legislation passed both houses of Congress strictly along partisan lines, and President Trump is expected to sign it in the coming days.
The final bill makes significant changes to federal tax code for both businesses and individuals in several ways. Our partners at NFP detailed those changes in their December 18 Washington Update.
Some of the more notable tax provisions that are effective for the 2018 tax year include:
- A reduction in the corporate tax rate from 21% to 35%
- A 20% new tax deduction for pass-through entities (such as Subchapter-S corporations and LLCs) up to the first $315,000 in taxable income, with limitations for professional service businesses
- A reduction to the personal income tax brackets for individuals until the end of the 2025 tax year
- A doubling of the standard deduction available to individuals and elimination of the personal exemption
- A doubling of the child tax credit
- A $10,000 cap on the individual state and local tax deduction
On the health care reform front, the Tax Cuts and Jobs Act makes one key change by eliminating the tax penalties associated with the individual mandate to buy health insurance beginning in 2019. It’s important to note that because of this 2019 effective date, individuals could still face tax penalties for failing to purchase health insurance in 2018.
Also important, the bill makes no changes to the Affordable Care Act’s penalties or other provisions directly impacting employers. The Employer Mandate remains the law of the land, as do the ACA’s employer reporting requirements, community rating rules, and the essential health benefits package.
It remains to be seen whether those frontiers will be tackled by legislative action, which to date has failed to get off the ground, or by regulatory action. One thing is certain: Change is in the works, and our team will continue to monitor and share impacts as they develop.