Tax Law Changes Effective 2019
After the major tax law changes that took effect in 2018, there are not many ahead for 2019.
The few changes that become effective in 2019 include:
- Itemized deduction for medical expenses. If you still itemize deductions after the 2018 significant increase in the standard deduction, medical expenses are deductible only to the extent they exceed a percentage of “adjusted gross income” (generally, the last line on the first page of a 1040 tax return). For 2109, the percentage is 10% (up from 7.5% in 2018).
- Penalty for failure to have health insurance. The penalty for failure to have health insurance is repealed for 2019. In 2018, the penalty is the higher of $695 per adult and $347.50 per child (capped at $2,085 per household) or 2.5% of household income.
- Tax effects of Alimony. For around 75 years, the tax rule has been that the person that pays alimony gets a tax deduction and the person who receives alimony pays tax on it. The deduction for paying alimony (and the corresponding tax on receiving alimony) are both repealed for divorce decrees or agreements entered into after December 31, 2018, or for changes to pre-December 31, 2018 divorce decrees or agreements, if the changes are made after December 31, 2018 and the modification explicitly says that the new law (no deduction, no tax) applies.
The substantial 2018 tax changes will affect the 2018 tax return that you file in early 2019. If the result of that return is a surprise (good or bad), it’s also a good idea to pay some early attention in 2019 to your tax withholding at work. Your tax withholding is based on the IRS Form W-4 you gave your employer in the past, but that was based on the old tax law. The IRS has announced that it will take until 2020 to make changes in the W-4 form that will fully implement how the 2018 tax law changes affect what you should be having withheld at work. If the result of your 2018 tax return means that you should change your withholding (up or down), then until a newer and better W-4 form is available, you can use the IRS Withholding Calculator to help you decide whether you need to give your employer a new W-4 form.
Attorney Michael Henry regularly provides tax law guidance to individuals and businesses including assistance with high net-worth estate planning and business succession planning.