How the new tax bill could affect you

Created date

March 2nd, 2018
A photo of a W-9 form covered by a post-it that reads "2018 tax laws"

Tax laws take effect after the 2017 legislative season.

On Dec. 22, 2017, President Donald Trump signed into law the Tax Cuts and Jobs Act, after it passed both houses of Congress. No matter how you feel politically about the new tax laws, you’re probably curious how they will affect your bottom line.

Of course, each person’s financial situation is different, so you should consult your accountant about how the changes will specifically impact you. But experts do have some initial views on how the tax bill is likely to impact older taxpayers. The AARP sent a letter to lawmakers expressing concern about how the bill could hurt Americans over age 50. AARP CEO Jo Ann Jenkins wrote that the new legislation will increase the national deficit by $1.5 trillion over the next decade, and by an unknown amount after 2027.

“The large increase in the deficit will inevitably lead to calls for greater spending cuts, which are likely to include dramatic cuts to Medicare, Medicaid, and other important programs serving older Americans,” she wrote.

Dr. Jian Zhou, a professor at the Shidler College of Business at the University of Hawaii at Manoa, says that so far the tax act doesn’t impact social security. But he says financing the tax cuts and reducing the deficit could affect social security in the future.

Zhou also points out that the standard deduction will increase from $12,700 to $24,000 for married couples and from $6,350 to $12,000 for single taxpayers.

“There are changes in tax brackets and reductions in income tax rates for single filers and those married who are filing jointly,” Zhou says. “For example, for single filers with income between $38,700 and $82,500, the tax rate is 22% instead of 25%.”

Chained CPI

Dr. Diane Dewar, associate professor and director of the Institute for Health System Evaluation at University at Albany, SUNY, and private wealth advisor Kelby Edwards do anticipate that social security benefits will be impacted by a change in the consumer price index (CPI) calculation. They say a new formula called Chained CPI will be used, and it takes into account the economic principle of “substitution,” meaning consumers are likely to switch to less expensive goods or services when others become too costly.

“The tax act would change over to this new method beginning in 2023, which will likely result in lower or no COLA increases in benefits,” Dewar and Edwards say.

The new tax laws could also impact health care costs. The health care mandate was repealed, meaning young and healthy people may choose not to purchase insurance—leading companies to raise premiums for remaining customers.

“This fallout could result in spending cuts in Medicare and other insurance since the medical loss of the payouts will exceed the income generated by the premiums received from the sicker members with insurance coverage,” Dewar and Edwards say.

Currently, medical expense deductions that exceed 7.5% of adjusted gross income can be deducted on your tax return. But after 2019, that threshold will increase to 10%.

“Therefore, those anticipating any major medical procedures, [such as] hip or knee replacement surgeries, should plan ahead and complete them prior to 2020,” Dewar and Edwards say.