2018 inflation adjustments

The Internal Revenue Service has announced a number of inflation-adjusted amounts for 2018, which affect individual returns, business returns, and estate tax returns.

Miscellaneous 2018 individual inflation-adjusted amounts

In 2018, the standard deduction will be $13,000 for married individuals filing joint returns, $9,550 for heads of households, and $6,500 for unmarried individuals and married individuals filing separately.

For 2018, the personal exemption amount is $4,150. For married individuals filing joint returns, the exemption phases out between adjusted gross income of $320,000 and $442,500. For unmarried individuals, the phaseout begins at $266,700 and completely phases out at $389,200, while for married individuals filing separately, the phaseout range goes from $160,000 to $221,250.

The maximum 39.6% tax rate affects single taxpayers whose income exceeds $426,700, and married taxpayers filing jointly whose income is above $480,050 in 2018, up from $418,400 and $470,700 in 2017, respectively.

The limitation on itemized deductions on 2018 tax returns of individuals begins with income of $266,700 or more, while for married couples filing jointly the income limit is $320,000.

The 2018 deduction for expenses of elementary and secondary school teachers for books, supplies, computer equipment, and other supplementary materials remains at $250 for 2018.

The dollar limitation for voluntary employee salary reductions for contributions to health flexible spending arrangements is $2,650 for 2018, up from $2,600 for 2017.

For taxable years beginning in 2018, the monthly limitation for the fringe benefit exclusion for qualified parking is $260.

For taxable years beginning in 2018, the foreign earned income exclusion is $104,100, up from $102,100 in 2017.

Long-term care premiums

The limitation regarding eligible long-term care premiums includable in medical care have been adjusted for 2018, as follows:

 

Attained Age Before the Close of the Taxable Year           Limitation on Premiums

40 or less                                                                             $420

More than 40 but not more than 50                                    $780

More than 50 but not more than 60                                    $1,560

More than 60 but not more than 70                                    $4,160

More than 70                                                                      $5,200

Estate and gift limits

For an estate of any decedent dying in 2018, the basic exclusion amount is $5,600,000 for determining the amount of the unified credit against estate tax. This limit was $5,490,000 in 2017.

The annual exclusion for gifts in 2018 is $15,000, which is up $1,000 from 2017.

Election to expense depreciable assets

For taxable years beginning in 2018, the aggregate cost of any §179 property that a taxpayer elects to treat as an expense cannot exceed $520,000. The $520,000 limitation is reduced (but not below zero) by the amount the cost of §179 property placed in service during the 2018 taxable year exceeds $2,070,000.

401(k) Plan elective deferral

The limit on elective deferral for contributions to 401(k) plans, 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan will increase from $18,000 in 2017 to $18,500 for 2018. However, the catch-up contribution limit for those 50 and older remains at $6,000.

Qualified plan amounts

For 2018, the defined contribution plan limit will increase from $54,000 to $55,000. However, the catch-up contribution limit for those 50 and older remains at $6,000.

IRA contributions

The limit on annual contributions to an IRA remains at $5,500, plus a maximum catch-up contribution limit for those 50 and older of $1,000.

The ability of taxpayers who are covered by workplace retirement plans to make a deductible individual retirement arrangement (IRA) contribution is phased out for singles and heads of household who have modified adjusted gross incomes (AGIs) between $63,000 and $73,000, a slight increase from last year.

For married couples filing jointly, where the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phaseout range is $101,000 to $121,000 for 2018. These amounts also increased slightly from 2017. When an IRA contributor is not covered by a workplace retirement plan but is married to someone who is, the deduction is phased out if the couple’s income is between $189,000 and $199,000, also an increase from 2017.

For taxpayers making contributions to Roth IRAs, the phaseout range for determining the maximum contribution is $189,000 to $199,000 for married couples filing jointly and $120,000 to $135,000 for singles and heads of household. These limits were all increased from 2017.

The AGI limit for the saver’s credit is $63,000 for married couples filing jointly, $47,250 for heads of household, and $31,500 for single taxpayers and for married individuals filing separately, all increases from 2017.

Social Security wage base increase

The maximum earnings subject to the Social Security component of the FICA tax will increase from $127,200 to $128,700 for 2018, which means that employers and employees will each pay $7,979.40. A self-employed person will pay $15,958.80. The Medicare component remains 1.45% on all earnings.

Individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly, and $125,000 for married filing separately) will pay an additional 0.9% in Medicare taxes.

Quarter of coverage

The amount of earnings required for a quarter of coverage for Social Security is $1,320 in 2018, up from $1,300 in 2017, up to the maximum of four credits per year. Anyone born in 1929 or later needs 10 years of work (40 credits) to be eligible for retirement benefits. People born before 1929 need fewer years of work.

Nanny tax

For 2018, the cash wages paid for domestic service is subject to FICA tax if the amount of wages paid during the year is more than $2,100, up from $2,000 for 2017. This dollar limit applies separately to each employee.

If you have any questions regarding these inflation-adjusted amounts for 2018, please give us a call.