The Tax Cuts and Jobs Act approved by Congress and signed into law by President Donald Trump in December is expected to affect nearly every business and individual taxpayer — including religious employers and employees — when they file their 2018 taxes.
Most provisions were made effective Jan. 1, and many of the changes to the Internal Revenue Code are temporary, calling for them to expire at the end
of 2025.
And while none are specifically directed at churches or church workers, here’s a list of some 2018 changes:
- There is no longer a deduction for personal exemptions. For as long as the federal government has been taxing individuals, most taxpayers have depended on their ability to reduce their taxable income with their claims of one or more personal exemptions — generally, one for themselves and each qualifying dependent. Not to be confused with the taxpayer’s standard or itemized deductions, personal exemptions were in addition to those claims but similarly adjusted each year for inflation. In 2017, for example, the personal exemption amount was $4,050.
- There is no longer a deduction for unreimbursed employee business expenses formerly deductible as miscellaneous itemized deductions and subject to the 2 percent adjusted gross income (AGI) floor. Historically, tax law permitted employed taxpayers a deduction, in part, for their out-of-pocket business expenses that were not reimbursed by their employer. The added complexity for claiming these deductions was their treatment as miscellaneous itemized deductions — only taxpayers who itemized their deductions benefited by claiming these.
- The above-the-line deduction for certain expenses for teachers has been doubled — to a maximum of $500 per individual. Teachers can claim this Educator Expense Deduction regardless of whether they take the standard deduction or itemize — it’s one of those adjustments made to calculate adjusted gross income (AGI being the “line”).
- The standard deduction for individuals has been significantly increased and indexed for inflation. For example, for singles and married couples filing separately, that deduction increases from $6,350 in 2017 to $12,000 in 2018. For married couples filing jointly, last year’s $12,700 deduction climbs to $24,000. In 2018, non-itemizer tax filers who are blind or over 65 can add an additional standard deduction of $1,300. Those who are blind or over 65 and unmarried and not a surviving spouse can add $1,600.
- There is no longer an exclusion or tax deduction for job-related moves.
- Tax rates have been lowered on associated income tables.
- Tax-advantaged “529” educational savings plans have been expanded to include tuition for kindergarten through Grade 12. Before the reform, 529 plans were designed to encourage saving only for future college costs. Earnings from 529 plans are not subject to federal tax and generally not subject to state tax when used for the qualified education expenses — such as tuition, fees, books, room and board — of the designated beneficiary.
While not part of tax reform, the IRS has increased the standard business mileage rate from 53.5 cents to 54.5 cents, and the standard medical mileage rate from 17 cents to 18 cents.
The rate for charitable deduction purposes, set by statute rather than the IRS, remains at 14 cents per mile.
Compensation of ministers earned in their ministries is excluded from mandatory federal income tax withholding. So, ministers are advised to either pay quarterly installments of their estimated tax or mutually agree with their employers on voluntary withholding.
A worksheet is available to help ordained and commissioned ministers estimate their 2018 income and self-employment taxes. (But it is not designed to calculate their actual taxes.)
To download the “Estimated Taxes Worksheet,” visit lcms.org/2018-tax-information.
Editor’s note: Information in this article has been provided by the LCMS Accounting Department. The department does not intend that this information replace consultation with a tax or financial professional.
Posted May 10, 2018
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The article links a tax worksheet. The article says that unreimbursed business expenses are no longer deductible. The worksheet has that as a deduction to income. Wondering if the accounting department just put a new date on an old sheet?? Or are they deductible? Thanks!
To you, the linked worksheet appears to allow a deduction to income tax for unreimbursed business expenses contrary to the article. However, the worksheet shows a subtraction for unreimbursed business expenses in the process of calculating self-employment tax. Although unreimbursed employee business expenses can no longer be deducted for income tax purposes, these can still be used to reduce net earnings subject to self-employment tax. The worksheet does replace an old one and we believe it is correct.
Karen M. Sansone, MAcc, CPA
LCMS, Director of Tax & Compliance