2018 Tax Brackets (2024)

With the passage of the TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Cuts and Jobs Act (TCJA), many tax brackets, thresholds, and rates will change in 2018. Noticeable changes to the structure of the individual tax code include the elimination of personal exemptions, the elimination of the Pease limitation on itemized deductions, and the expansion of the Child Tax Credit.

Additionally, on a yearly basis the IRS adjusts more than 40 tax provisions for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power.. This is done to prevent what is called “bracket creep,” when people are pushed into higher income tax bracketsA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. or have reduced value from credits or deductions due to inflation, instead of any increase in real income.

The IRS used to use the Consumer Price Index (CPI) to calculate the past year’s inflation. However, with the TCJA, the IRS will now use the Chained Consumer Price Index (C-CPI) to adjust income thresholds, deduction amounts, and credit values accordingly. [1]

Income Tax Brackets and Rates

In 2018, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows (Tables 1 and 2). The top marginal income tax rate of 37 percent will hit taxpayers with taxable income of $500,000 and higher for single filers and $600,000 and higher for married couples filing jointly.

Standard Deduction and Personal Exemption

The standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. for single filers will increase by $5,500 and by $11,000 for married couples filing jointly (Table 2).

The personal exemption for 2018 is eliminated.

Alternative Minimum Tax

The Alternative Minimum Tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two.

The AMT uses an alternative definition of taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. called Alternative Minimum Taxable Income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, this exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent.

The AMT exemption amount for 2018 is $70,300 for singles and $109,400 for married couples filing jointly (Table 7).

In 2018, the 28 percent AMT rate applies to excess AMTI of $191,500 for all married taxpayers ($95,750 for unmarried individuals).

Under the TCJA, AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2018, the exemption will start phasing out at $500,000 in AMTI for single filers and $1 million for married taxpayers filing jointly (Table 8.)

Earned Income Tax CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly.

The maximum Earned Income Tax Credit in 2018 for single and joint filers is $520, if the filer has no children (Table 9). The credit is $3,468 for one child, $5,728 for two children, and $6,444 for three or more children. All of these are relatively small increases from 2017.

[1] https://www.irs.gov/pub/irs-drop/rp-17-58.pdf