- The Internal Revenue Service has released some changes to 2018 tax rates.
- The updates come as lawmakers in Washington are working to cut a deal on tax reform.
The Internal Revenue Service has unveiled some changes for 2018 including cost-of-living adjustments for retirement savings and inflation changes for certain tax provisions.
The annual adjustments come as lawmakers in Washington are working feverishly on a new budget that is expected to precede tax reform. President Donald Trump this weekend called for Republicans to move on the legislation swiftly in order to clear the way for the tax efforts.
Here are some of the bigger changes:
Higher contribution limits for retirement savings
Employees who participate in certain retirement plans ‒ 401(k)s, 403(b)s, most 457 plans and the Thrift Savings plan – will be able to contribute as much as $18,500, a $500 increase from the current $18,000 limit.
Deductible contributions to IRAs
Savers who contribute to individual retirement accounts will have higher income ranges following cost-of-living adjustments. Note that the deduction phases out for individuals and their spouses who are covered by workplace retirement plans.
For single taxpayers, the limit will be $63,000 to $73,000.
For married couples, the phase-out range will vary depending on whether the IRA contributor is covered by a workplace retirement plan or not. When the spouse who is investing has access to an employer plan, the range is $101,000 to $121,000. For individuals who don't have a retirement plan but are married to someone who does, the phase out has been raised to $189,000 to $199,000.
The phase-out was not adjusted for married individuals who file a separate return and who are covered by a workplace retirement plan. That range is $0 to $10,000.
Contributions to Roth IRAs
For individuals who are single or the heads of their households, the income phase-out has been raised to $120,000 to $135,000. For married couples who file jointly, the range climbs to $189,000 to $199,000.
The phase out was not adjusted for married individuals who file a separate return. That is $0 to $10,000.
Those who are married and filing jointly will have a standard deduction of $13,000, a $300 raise from $12,700.
Single taxpayers and those who are married and file separately will see their standard deduction rise to $6,500.
For heads of households, the deduction will be $9,550.
The personal exemption will grow by $100 to $4,150. The phase-out for this exemption begins at income of $266,700, or $320,000 for married couples who file jointly, and phases out completely at $389,200 for individuals and $442,500 for couples who file together.
Top income tax rate
The 39.6 percent tax rate will affect individuals with income over $426,700. Top rate kicks in for married taxpayers who file jointly at $480,050.
Alternative Minimum Tax
The exemption amount will be $55,400 for individuals before the AMT kicks in, and begins to phase out at $123,100. For married couples who file jointly, that will be $86,200, and will begin to phase out at $164,100.
The basic exclusion amount for estates of decedents who die in 2018 will be $5.6 million, up from $5.49 million in 2017.