Popular Tax Deductions, Credits & Benefits Included in Tax Cuts and Jobs Act (TCJA)

January 31, 2018 : Gil Charney

So much has been examined, analyzed, and written about changes in the new tax law (the Tax Cuts and Jobs Act, or TCJA), but little mention has been made to popular tax provisions that have not changed. The latest reform  has left many popular credits, deductions and benefits in the tax bill, and here are a few highlights.

 

The Earned Income Tax Credit (EITC) – a popular tax credit with lower-income taxpayers, this credit can be worth up to $6,444 in 2018 (MFJ with three or more children). The credit begins to phase out once a taxpayer’s earned income rises above certain thresholds, based on filing status. Besides the higher credit in 2018 compared to 2017, nothing else about the EITC has changed in 2018.

 

The Dependent Care Credit Taxpayers who must pay daycare expenses so they can work may qualify for  this popular tax credit. The credit ranges from 20% to 35% of eligible expenses, up to $3,000 for one qualifying person (child under 13 or other eligible dependent) and $6,000 for two or more qualifying people.

 

The education credits The American Opportunity Credit and the Lifetime Learning Credit, two highly popular education tax credits, ultimately emerged from Congressional debate with no changes. The American Opportunity Credit is a credit up to $2,500 available for students during their first four years of post-secondary school education. Up to $1,000 of this credit remains refundable. Similarly, the Lifetime Learning Credit, which is limited to $2,000 per tax return (not per student), is available to any taxpayer who takes qualifying coursework.

 

Other education-related benefits – The $250 above-the-line deduction for teachers, instructors, principals, and other qualified K-12 educators remains intact, as well as the popular above-the-line tax deduction for interest paid on qualified student loans.

 

Taxability of Social Security benefits – A common tax break that benefits many, recipients of Social Security benefits do not need to pay tax on these benefits unless their “provisional” income exceeds a certain amount (the “base”), which depends on filing status. Once the base is reached, an increasing percentage of Social Security is taxable, up to 85% of Social Security benefits. None of a taxpayer’s Social Security benefits are included in income if provisional income doesn’t exceed the base amount.

 

The IRA deduction – Taxpayers may reduce their gross income for 2018 up to $5,500 (taxpayers under age 50), or $6,500 (taxpayers age 50 or over) for IRA contributions. IRA contributions for the 2018 tax year can be made as late as the tax filing deadline in April 2019. This popular tax deduction is limited for taxpayers whose income is above certain thresholds if they participate in a retirement plan at work, such as a 401(k) plan.

 

Above-the-line deductions for the self-employed – The deductible portion of self-employment tax, retirement plan contributions made by the self-employed to their own plans, and the self-employed health insurance deduction remain the same.

 

Health Savings Accounts (HSAs) – Like the IRA deduction, contributions to an HSA may also be deducted to reduce gross income. The limit for 2018 is $3,450 (for individual coverage) or $6,900 (for family coverage). These contribution limits can be increased by $1,000 if the taxpayer is at least age 55. HSAs require that the taxpayer have a high-deductible health plan.

 

The Saver’s Credit – This credit is at least 10% and up to 50% of eligible contributions to IRAs and qualified retirement plans, up to a maximum credit of $1,000 ($2,000 for married taxpayers filing jointly). This popular tax credit varies based on the taxpayer’s modified adjusted gross income. Taxpayers who contribute to an IRA for 2018 by the tax filing date in 2019 may also claim the Saver’s Credit for 2018, if they qualify.

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Gil Charney

Gil is the Director of Tax Law and Policy Analysis for The Tax Institute at H&R Block.