The New Standard Deduction and Removal of Exemptions – What Does It Mean to You?

April 09, 2018 : Catherine Martin

Under the Tax Cuts and Jobs Act (TCJA), the new standard deductions are nearly double the previous amounts. Additionally, tax reform has eliminated exemptions that taxpayers claim for themselves and their dependents. The way that these changes affect taxpayers depends on their specific tax situation.

While the new higher standard deduction and removal of exemptions are two major changes in the TCJA, these alone won’t necessarily determine whether you’ll pay more or less. The TCJA also changed tax brackets, rates, and many other provisions that will affect each person differently.

Standard Deduction – 2018 and Beyond

Each year, taxpayers can pick the better option for their situation: the standard deduction or itemized deductions.

The standard deduction is generally a fixed dollar amount, adjusted each year for inflation, that reduces the taxpayer’s taxable income. Here are some details:

  • The value of the deduction depends mostly on the taxpayer’s filing status. Elderly or blind taxpayers can claim an additional amount.
  • Typically, taxpayers claim the standard deduction only if their itemized deductions are less than the standard deduction. Itemized deductions include expenses such as mortgage interest, state and local taxes, medical expenses, and more.
  • The TCJA nearly doubles the existing standard deduction amounts for tax years 2018–2025. Because the TCJA has changed many tax provisions, taxpayers may or may not benefit from the higher standard deduction. It depends on how each taxpayer is affected by the other provisions in this tax bill.
  • The new higher standard deduction means that many taxpayers who previously itemized will now choose the standard deduction. Taxpayers whose itemized deductions are higher than the new standard deduction will likely continue to itemize.

Prior to TCJA, the standard deduction for tax year 2018 was slated to be:

  • $13,000 – Married Filing Joint or Surviving Spouse
  • $9,550 – Head of Household
  • $6,500 – Married Filing Separate or any other Single filer

Standard Deduction Under the New Tax Plan

For years 2018-2025, the Standard Deduction has been increased to:

  • $24,000 for Married Filing Joint or Surviving Spouse
  • $18,000 for Head of Household
  • $12,000 for Married Filing Separate or any Single filer

The additional standard deduction for the elderly and the blind is not changed.

Cost of Living Adjustments

The TCJA also changed inflation adjustments for cost of living. Cost of living will likely increase at a more gradual rate under the new measure.

For further information on the new cost of living adjustment, please see the Bureau of Labor Statistics.

Personal and Dependent Exemptions After Tax Reform

What is an exemption?

Taxpayers can claim an exemption for themselves, their spouse, and their dependents (if eligible). Each exemption lowers taxable income by $4,050 under current (2017) law.

  • The TCJA has suspended all personal and dependent exemptions for tax years 2018-2025.
  • New tax provisions, including a higher standard deduction, may or may not make up for the removal of personal and dependent exemptions, as taxpayers’ situations vary. To estimate how your taxes may change, visit our tax refund and tax reform calculator.

Return Filing Requirements

Under the 2017 tax code, taxpayers were required to file a return if their income reached the amount of the standard deduction for their filing status, plus $4,050 (the personal exemption amount). Under the TCJA, taxpayers are required to file if their income reaches the new increased standard deduction.

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Catherine Martin

Catherine Martin

Catherine Martin is a senior tax research analyst within The Tax Institute at H&R Block.