The New Tax Cuts and Jobs Act, as the name suggests was introduced to cut individual, corporate and estate tax rates. Following our previous three write-ups, we have discussed changes in the tax rates, personal exemption, standard deduction, the increase in child tax credit, the lowered threshold for medical deduction expenses, and the No more salt advantage. In this blog, we will be covering the Obama care penalty, new pass-through income deduction, and changes in the alternative minimum tax. Let’s discuss them one-by-one.
No More Obamacare Penalties Starting In 2019
From the year 2019, the federal tax penalty has been eliminated, because of the changes brought by the Trump Administration in the year 2019. For the year 2018, the tax penalty for not having aka the “Obamacare penalty” was $695 for adult members of the family and $347.50 for children or 2% of yearly income, whichever amount is more.
Here one needs to note one important caveat: The federal tax penalty has been repealed from the year 2019. Therefore, you still may have to face the penalty for not maintaining qualifying health coverage throughout 2018 while filing your tax return in the year 2019.
The New Pass-Through Income Deduction
The Tax Cuts and Jobs Act (TCJA) has come up with a bunch of significant changes for individual income taxpayers. These changes include revised limitations on itemized deductions, double standard deductions, and few other reforms. TCJA was specially introduced for small business owners, it includes a 20% deduction for all “pass-through” income. A Pass-through income is taxed at the individual business owner's level, instead of the corporate level. This is used to reduce or nullify the effects of double taxation. These entities include Real estate, LLCs, and S-Corps.
There is one major restriction that one should note. The newly implemented law establishes a maximum amount of income for the category of “professional services” business such as consultants, lawyers, and doctors, can reap the advantage of the deduction while earning.
Prodigious Changes To the Alternative Minimum Tax
The Alternative Minimum Tax or AMT is imposed by the Government of The United States in addition to income tax paid by certain individuals, trusts, and estates. To prevent high-income slab taxpayers from avoiding their individual income tax. Therefore, it ensures a fair share of taxes is paid, even if they are qualified for a number of credits and deductions. This parallel system requires taxpayers to calculate their respective taxes twice, once using AMT and again under the standard method – and will have to pay for higher of the two.
A couple of new changes have been introduced in AMT. The first one is — AMT began affecting more and more middle-class Americans due to inflation, and it was never designed to do that. Therefore, the AMT exemption has now indexed for inflation.
Secondly, the AMT exemption limit and the phase-out limits, have been increased notably. Let’s have a quick look at the AMT exemption for the tax years 2018-19.
| Tax Filing Status |
2018 AMT Exemption Amount |
2019 AMT Exemption Amount |
| Unmarried Individuals | $70,300 | $71,700 |
| Married Filing Jointly | $109,400 | $111,700 |
| Married Filing Separately | $54,700 | $55,85 |
Here is the Phase-out threshold limit that has been changed drastically:
| Tax Filing Status | 2018 Phase-Out Threshold | 2019 Phase-Out Threshold |
| Married Filing Jointly | $1,000,000 | $1,020,600 |
| All Others | $500,000 | $510,300 |
In the year 2018 threshold limit for a married couple was $1,000,000 and in the year 2019, it has been changed to $1,020,600.
Suggested read 2019 Tax Changes: Everything You Need to Know (3/5)
