key things to know…
The Tax Cut and Jobs Act (TCJA) is now officially law. Both the House and Senate passed the new tax reform bill in December with straight party-line votes and no support from Democrats. It is the first overhaul of the tax code in more than thirty years.
Retirees, most of whom are on relatively fixed incomes, are probably the most concerned about what the new tax law will mean for them. But generally, they will be less affected than others because the changes do not affect how Social Security and investment income are taxed. In fact, many will benefit from the doubling of the standard deductions with the new individual tax brackets and rates, and will be paying less in taxes when they file their tax returns in April, 2019. (Most of the changes will apply to 2018 income, not 2017 income.)
For single filers, the standard deduction is increased from $6,350 to $12,000. For married couple filing jointly, it increases from $12,700 to $24,000. Under the new law, fewer filers would choose to itemize, as the only reason to continue to itemize is if deductions exceed the standard deduction.
The blind and elderly deduction has been retained in the new law. People age 65 and over (or blind) can claim an additional $1,550 deduction if they file as single or head-of-household. Married couples filing jointly can claim $1,250 if one meets the requirement and $2,500 if both do.
Effects on insurance and health care…
TCJA also eliminates the individual mandate to buy health insurance, removing the penalty for not buying insurance. This is expected to help offset the cost of the tax bill and save money by reducing the amount the federal government spends on insurance subsidies and Medicaid.
The Congressional Budget Office expects that fewer consumers who qualify for subsidies are expected to enroll on Obama Care exchanges and fewer people who are eligible for Medicaid will seek coverage and learn they can sign up for the program. (Estimates of those who are expected to have no health insurance by 2027 vary widely from 3-5 million to 13 million.)
Critics, including AARP, fear that eliminating the individual mandate will drive up health care premiums, result in more uninsured Americans and add $1.46 trillion to the deficit over the next ten years, which could trigger automatic spending cuts to Medicare, Medicaid, and other entitlement programs unless Congress votes to stop them.