The IRS and the Social Security Administration have released 2018 inflation-adjusted figures for more than 50 tax provisions. In addition to a 2 percent cost-of-living adjustment (COLA) for Social Security beneficiaries, details about adjustments to tax rate schedules, exemptions, and various thresholds for deductions and credits were announced. The tax year 2018 adjustments generally are used on tax returns filed in 2019.
Tax Rate Tables
The highest marginal tax rate for individuals of 39.6 percent applies in 2018 to taxable income over $480,050 for married couples filing jointly and $426,700 for single taxpayers. This is increases the 2017 levels of $470,700 (up $9,350) and $418,400 (up $8,300), respectively. See the end of this article for all of the individual and the estate and trust income tax rate tables for 2018.
The thresholds related to the 3.8 percent Medicare tax on unearned income and the 0.9 percent Medicare tax on wages and self-employment income remain unchanged for 2018 ($250,000 for married couples filing jointly; $200,000 for single filers) as these amounts are not indexed for inflation. Estates and trusts enjoy a slight increase in the 3.8 percent Medicare tax threshold, however, because that threshold is equal to the dollar amount at which the highest income tax bracket begins.
Alternative Minimum Tax (AMT)
For 2018, the AMT exemption increases from $84,500 to $86,200 for married couples filing jointly and from $54,300 to $55,400 for single filers. The AMT exemption is reduced by 25 percent of the amount by which alternative minimum taxable income in 2018 exceeds $164,100 for married couples filing jointly ($123,100 for single taxpayers).
For 2018, the 28 percent AMT rate applies to excess alternative minimum taxable income above $191,500 ($95,750 for married taxpayers filing separately).
Exemptions
The personal exemption and the dependency exemption are $4,150 for 2018, an increase to the 2017 amount of $4,050 (up $100). Personal exemptions phase out beginning at a 2018 adjusted gross income (AGI) level of $320,000 for married couples filing jointly ($266,700 for single filers) and are completely phased out at a 2018 AGI level of $442,500 for married couples filing jointly ($389,200 for single filers).
Itemized Deductions and Standard Deduction
Individuals with AGI in excess of certain thresholds must reduce the amount of allowable itemized deductions by the lesser of 3 percent of the excess of AGI over those thresholds, or 80 percent of the total amount of otherwise allowable itemized deductions. For 2018, that threshold is $320,000 for married couples filing jointly ($266,700 for single filers).
The standard deduction for married couples filing a joint return is slightly higher for 2018 is $13,000 (up $300). For single individuals and married couples filing separate returns, the standard deduction is $6,500 for 2018 (up $150). The 2018 standard deduction for heads of household increases to $9,550 (up $200).
Estate and Gift Tax
For 2018, the lifetime exclusion from estate and gift tax has increased from $5,490,000 to $5,600,000.
The annual gift tax exclusion in 2018 has increased to $15,000, up from the 2017 amount of $14,000. Gift splitting allows married couples to give up to $30,000 to a person without making a taxable gift. The exclusion for gifts to a spouse who is not a citizen of the United States increases $3,000 to $152,000 for 2018.
Education
The Hope Scholarship credit (American Opportunity Tax Credit) is equal to 100 percent of the amount of qualified tuition and related expenses not in excess of $2,000, plus 25 percent of those expenses that exceed $2,000 but do not exceed $4,000. Because the eligible expenses are not indexed for inflation, the maximum credit remains $2,500. This credit begins to phase out for single individuals whose modified adjusted gross income (MAGI) exceeds $80,000 and at $160,000 for married couples filing joint returns (these amounts also are not adjusted for inflation).
For tax years beginning in 2018, the Lifetime Learning Credit phases out for single individuals whose MAGI exceeds $57,000 and at $114,000 for married couples filing joint returns. This credit is completely phased out at 2018 MAGI of $67,000 for single individuals and $134,000 for married couples filing joint returns.
The $2,500 maximum deduction for interest paid on qualified education loans begins to phase out for single individuals with MAGI in excess of $65,000 and for married couples filing joint returns with MAGI in excess of $135,000 in 2018. The deduction is completely phased out for taxpayers at 2018 MAGI of $80,000 for single individuals and $165,000 for married couples filing joint returns.
Kiddie Tax
The amount used to reduce the net earned income reported on a child’s return subject to the kiddie tax remains at $1,050 in 2018. The same $1,050 amount is used to determine if a parent may elect to include a child’s gross income in the parent’s income and to calculate the kiddie tax.
Foreign Earned Income
For individual taxpayers who work overseas, the amount of foreign earned income that may excluded from taxation increases from $102,100 to $104,100 in 2018.
COLA Limits for Qualified Plans
The cost of living adjustments (COLAs) affect the maximum limits for a variety of contributions and distributions for 2018, including defined benefit accounts, 401(k)s, and other defined contribution plans, as well as limits on employee stock ownership plans (ESOPs) and benefits to highly-compensated employees.
Defined Contribution Plans
The limits on elective deferrals to 401(k), 403(b), certain 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500 for 2018. The limit on annual additions to defined contribution plans is increased in 2018 from $54,000 to $55,000.
Defined Benefit Plans and ESOPs
The maximum amount a defined benefit plan may pay a participant each year is increased in 2018 from $215,000 to $220,000. The amount for determining the maximum ESOP account subject to a five-year distribution period is increased to $1,105,000 in 2018. The dollar amount used to determine the lengthening period of the five-year distribution is also increased to $220,000 for 2018.
Compensation Related Limits / Definitions
The annual compensation limit relating to the maximum compensation counted for an eligible employee in a qualifying plan is increased by $5,000 to $275,000 for 2018. The limitation used in the definition of a highly-compensated employee remains unchanged at $120,000. The dollar limitation concerning the definition of key employee in a top heavy plan remains unchanged in 2018 at $175,000. The compensation amount relevant to the definition of control employee for fringe benefit valuation purposes in 2018 increased to $110,000 for officers and $220,000 for other employees.
Individual Retirement Accounts (IRAs)
Eligible taxpayers can contribute up to $5,500 to an IRA (excluding catch-up contributions discussed below), which is unchanged for 2018. For taxpayers who are active participants in an employer-sponsored retirement plan, the deduction for making contributions to a traditional IRA is phased out for single taxpayers who have MAGI in 2018 between $63,000 and $73,000, up from the 2017 amounts of $62,000 and $72,000. For married couples filing a joint return, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $101,000 to $121,000 in 2018, up from $99,000 and $119,000 for 2017. For married couples filing a joint return, in which the spouse who makes the IRA contribution is not an active participant in an employer-sponsored retirement plan but the other spouse is a participant, the deduction is phased out if the couple’s 2018 income is between $189,000 and $199,000, up from $186,000 and $196,000 in 2017.
The MAGI phase-out range for taxpayers making contributions to a Roth IRA in 2018 is $189,000 to $199,000 for married couples filing jointly, up from $186,000 to $196,000 in 2017. For single taxpayers, the income phase-out range in 2018 is $120,000 to $135,000, up from $118,000 to $133,000 in 2017.
Catch-up Contributions
The elective deferral limit for a SIMPLE plan remains unchanged at $12,500 in 2018. The $3,000 catch-up amount for SIMPLE plans remains unchanged for 2018.
SIMPLE Plans
The elective deferral limit for a SIMPLE plan remains unchanged at $12,500 in 2017. The $3,000 catch-up amount for SIMPLE plans remains unchanged for 2017.
Social Security Wage Base Increases for 2017
The maximum amount of earnings subject to Social Security increased from $127,200 to $128,700 (up $1,500) in 2018. The Social Security Administration also reported that Social Security and Supplemental Security Income benefits will increase for 2018.
We have only summarized the most common inflation adjustments here. For more information, please click on the links below.
2018 Tax Rate Tables
| Married Individuals Filing Joint Returns and Surviving Spouses |
| If Taxable Income Is: | The Tax Is: |
| Not over $19,050 | 10% of the taxable income |
| Over $19,050 but not over $77,400 | $1,905 plus 15% of the excess over $19,050 |
| Over $77,400 but not over $156,150 | $10,657.50 plus 25% of the excess over $77,400 |
| Over $156,150 but not over $237,950 | $30,345 plus 28% of the excess over $156,150 |
| Over $237,950 but not over $424,950 | $53,249 plus 33% of the excess over $237,950 |
| Over $424,950 but not over $480,050 | $114,959 plus 35% of the excess over $424,950 |
| Over $480,050 | $134,244 plus 39.6% of the excess over $480,050 |
| Unmarried Individuals (other than Surviving Spouses and Heads of Households) |
| If Taxable Income Is:: | The Tax Is: |
| Not over $9,525 | 10% of the taxable income |
| Over $9,525 but not over $38,700 | $952.50 plus 15% of the excess over $9,525 |
| Over $38,700 but not over $93,700 | $5,328.75 plus 25% of the excess over $38,700 |
| Over $93,700 but not over $195,450 | $19,078.75 plus 28% of the excess over $93,700 |
| Over $195,450 but not over $424,950 | $47,568.75 plus 33% of the excess over $195,450 |
| Over $424,950 but not over $426,700 | $123,303.75 plus 35% of the excess over $424,950 |
| Over $426,700 | $123,916.25 plus 39.6% of the excess over $426,700 |
| Married Individuals Filing Separate Returns |
| If Taxable Income Is: | The Tax Is: |
| Not over $9,525 | 10% of the taxable income |
| Over $9,525 but not over $38,700 | $952.50 plus 15% of the excess over $9,525 |
| Over $38,700 but not over $78,075 | $5,328.75 plus 25% of the excess over $38,700 |
| Over $78,075 but not over $118,975 | $15,172.50 plus 28% of the excess over $78,075 |
| Over $212,475 but not over $240,025 | $26,624.50 plus 33% of the excess over $118,975 |
| Over $208,350 but not over $235,350 | $57,479.50 plus 35% of the excess over $212,475 |
| Over $240,025 | $67,122 plus 39.6% of the excess over $240,025 |
| Heads of Households |
| If Taxable Income Is: | The Tax Is: |
| Not over $13,600 | 10% of the taxable income |
| Over $13,600 but not over $51,850 | $1,360 plus 15% of the excess over $13,600 |
| Over $51,850 but not over $133,850 | $7,097.50 plus 25% of the excess over $51,850 |
| Over $133,850 but not over $216,700 | $27,597.50 plus 28% of the excess over $133,850 |
| Over $216,700 but not over $424,950 | $50,795.50 plus 33% of the excess over $216,700 |
| Over $424,950 but not over $453,350 | $119,518 plus 35% of the excess over $424,950 |
| Over $453,350 | $129,458 plus 39.6% of the excess over $453,350 |
| Estates and Trusts |
| If Taxable Income Is: | The Tax Is: |
| Not over $2,600 | 15% of the taxable income |
| Over $2,600 but not over $6,100 | $390 plus 25% of the excess over $2,600 |
| Over $6,100 but not over $9,300 | $1,265 plus 28% of the excess over $6,100 |
| Over $9,300 but not over $12,700 | $2,161 plus 33% of the excess over $9,300 |
| Over $12,700 | $3,283 plus 39.6% of the excess over $12,700 |
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