IRS Inflation Adjustments Will Diminish Tax Cuts

By Daniel Hood

The Internal Revenue Service announced annual inflation adjustments for more than 60 tax provisions for 2019, using a new method of calculating inflation that Congress’ Joint Committee on Taxation says will diminish the value of the tax cuts in the Tax Cuts and Jobs Act.

The details of the adjustments were released in Revenue Procedure 2018-57, including the new standard deductions for married taxpayers filing jointly ($24,400, up $400), for single taxpayers and married taxpayers filing separately ($12,200, up $200), and for heads of households ($18,350, up $350).

While all the adjustments were all flat or upward, the new, slower measure of inflation – which was mandated by the TCJA itself – will lead to higher tax payments than the measure that was used previously. MarketWatch reported the Joint Committee on Taxation estimated that the change will cost taxpayers $133.5 billion over the course of a decade.

The announcement included the tax rates for different income brackets:

  • 37 percent for individual single taxpayers with incomes greater than $510,300 ($612,350 for married couples filing jointly);
  • 35 percent for incomes over $204,100 ($408,200 for married couples filing jointly);
  • 32 percent for incomes over $160,725 ($321,450 for married couples filing jointly);
  • 24 percent for incomes over $84,200 ($168,400 for married couples filing jointly);
  • 22 percent for incomes over $39,475 ($78,950 for married couples filing jointly);
  • 12 percent for incomes over $9,700 ($19,400 for married couples filing jointly); and,
  • 10 percent for incomes of single individuals with incomes of $9,700 or less ($19,400 for married couples filing jointly).

The rev proc also included adjustments for the Alternative Minimum Tax exemption amount, the maximum Earned Income Tax Credit, the dollar limit for health flexible spending accounts, the maximum adoption credit, and the annual gift exclusion (which was unchanged at $15,000).

Two items had a value of 0, including the personal exemption, which was eliminated by the TCJA, and the penalty for not maintaining “minimal essential health coverage” under the Affordable Care Act.

Originally published on Accounting Today.