New Inflation-adjusted Amounts Result from Tax Reform

• In compliance with the recent tax code overhaul, the IRS has set a new revenue procedure that adjusts inflation amounts in the 2018 tax year.
• Statutory changes necessitated by the tax overhaul altered the formula for certain annual adjustments to limitations and thresholds.
• The 2018 tax year contains numerous updated thresholds and limitations.

Modifications conform to new tax overhaul

The Internal Revenue Service (IRS) has set a new revenue procedure that adjusts inflation amounts in the 2018 tax year. The modifications conform to the new tax overhaul, which changed the inflation adjustment formula. IRS Revenue Procedure 2018-18 was published in Internal Revenue Bulletin 2018-10.

In fall 2017, the IRS issued Revenue Procedure 2017-58, which made the required inflation adjustments for several 2018 tax-year provisions. The statutory changes necessitated by the tax overhaul altered the formula for certain annual adjustments to limitations and thresholds using the chained consumer price index (CPI). This formula generally results in smaller adjustments to the amounts. Consequently, some 2018 amounts needed to be modified from what the IRS previously published.

Updated thresholds and limitations for 2018 include:

Maximum adoption credit/assistance: $13,810 (previously published as $13,840). Phase-out of the credit/assistance begins at modified adjusted gross income in excess of $207,140 (previously published as $207,580) and is completely phased out at $247,140 (previously published as $247,580).

Small business tax credit for health insurance: The average annual wage for determining whether a business is an eligible employer that may qualify for the maximum credit is $26,600 (previously published as $26,700), and maximum average annual wages before credit is fully phased out is $53,200 (previously published as $53,400).

Overall limitations on itemized deductions: The overall limitation does not apply under the new tax law (previously published amounts were $320,000 for a joint return, $293,350 for head of household and $266,700 for an individual). The law limited deductions on certain items, including a new cap of $10,000 on state and local taxes and a lower threshold for the mortgage interest deduction.

Archer medical savings accounts (MSAs): An Archer MSA is a savings account that earns tax-deductible interest for medical expenses. Small business or self-employed individuals often use these plans to help employees pay for healthcare services. MSAs are often high-deductible health plans. For single coverage in tax year 2018, annual deductibles range from $2,300-$3,450 — amounts unchanged from previous tax years. However, the annual out-of-pocket maximum is now $4,550 (previously published as $4,600). For family coverage, the annual deductible is $4,550-$6,850 (previously published as $4,600- $6,850) and the annual out-of-pocket maximum is $8,400 (unchanged from the previously published amounts).

Failure to file a tax return: For returns filed in 2019, the penalty for failure to file a tax return within 60 days of the due date will be the lesser of 100 percent of the tax owed or $210 (previously published as $215).

Failure to file correct information returns: The maximum amount for failure to file or furnish a correct information return in 2019 is:

• $545,500 if the correct return is filed in 30 days (previously published as $547,000);
• $1,637,500 if the correct return is filed between 30 days and Aug. 1 (previously published as $1,641,000); and
• $3,275,500 if the correct return is filed after Aug. 1 (previously published as $3,282,500).

The maximum amount for failure to file or furnish a correct information return in 2019 for small businesses with average gross receipts of $5 million or less is:

• $191,000 if the correct return is filed in 30 days (no change to the previous);
• $545,500 if the correct return is filed between 30 days and Aug. 1 (previously published as $547,000); and
• $1,091,500 if the correct return is filed after Aug. 1 (previously published as $1,094,000).

These information reporting penalties apply to forms such as W-2s, 1099s, and 1095-Cs.

Health savings accounts (HSAs): The annual contribution limit for self-only coverage is $3,450 (unchanged from the previously published rate). The annual contribution limit for family coverage is $6,850 (previously published as $6,900).

The IRS has also published tax reform changes to the individual tax rates and thresholds in this Revenue Procedure. These do not differ from what was contained in the statute. Rather, it adjusts what the agency published in fall 2017 before the passage of the new tax law on Dec. 22, 2017.