The last tax reform plan passed about 30 years ago, which is how old many of us millennials are today. Considering tax reform only comes along so seldom, I thought it appropriate to pick up on an article from CNN Money and lay out the provisions from the new tax law that will affect millennials through much of our working lives.
As the article points out, key provisions dealing with tuition (like tax exclusions for employee-sponsored tuition and tuition waivers) are still available. For anyone burdened with what seems like insurmountable student loan debt, you should be somewhat happy about these provisions if you are able to take advantage. But let’s be honest, we never really get too happy about anything, so I will break down the remaining provisions that may matter to you the most.
Lower Tax Rates (at least for a little while)
Now that many of us have been “adulting” for some time, we have discovered taxes often suck most of the joy out of pay day. When the new tax rates take effect, you may find yourself in a new—and lower—tax bracket. If you make around the median income for earners aged 24-34 (about $40,500), you would move from a 25% bracket to a 22% bracket. Without taking my word for it, be sure to check out the Tax Foundation’s analysis and breakdown of the new tax law. Yes, the ordinary income tax cuts are set to expire in the future, but a future Congress not renewing these cuts for working folks would be risky at best.
Standard Deduction Increase
Many Millennials may not have a lot of itemized deductions at this point in our lives, so if you usually just take the standard deduction, you are in for a treat. The new law doubles the standard deduction to $12,000 single and $24,000 married.
Tuition and Student Loan Perks
About 145,000 graduate students, who also teach or perform research, will still get the tuition waiver. Further, if your employer contributes up to $5,250 yearly to your tuition for qualifying continuing education programs, you still do not have to pay taxes on that money. Also, the law still allows you to deduct up to $2,500 per year on the interest paid to student loans. But that benefit is only if you make less than $80,000 single or $165,000 married.
Work Opportunity Tax Credit
Employers will still be able to use this tax credit, which is an added incentive for hiring of young military veterans and young people who need to work seasonally.
More Child Tax Credits
While many Millennials are single without kids, if you are married with children, or plan to start a family soon, you may be eligible for up to $2,000 per child.
The article goes on to point out some potential losses for Millennials in the new tax law. First, you will no longer be able to deduct moving expenses whether you itemize your tax returns or not. But there may be some exceptions for members of the military. Second, you will no longer be able to deduct $20 of income per month for the cost of bicycle commuting to and from work. Last, the new tax law eliminates the tax preparation deduction, i.e., you can’t deduct the cost of having your taxes prepared by a CPA or deduct the cost of tax preparation software.
To wrap up this little review, the law also repealed the Affordable Care Act’s (Obamacare’s) individual mandate. Why is this related to taxes? Under Obamacare, we were assessed a tax penalty for not having health insurance. With the mandate to purchase insurance gone, the tax penalty is reduced to zero. Good news for some.
Note: This article isn’t intended to go on to discuss the substantive effects on the healthcare industry, premiums, coverage, etc. Just know that you are now able decide whether to purchase health insurance in the free marketplace without a negative tax consequence.
As I have mentioned in previous articles, I do see many consumers with significant medical debt. So, if you do decide to forgo coverage, just make sure as an educated consumer you understand the pros and cons. After all, that is the point of the free market. Still, Millennial generation or not, if you find yourself with a lot of medical debt, tax debt, or even certain student loan debt mentioned above, any of our attorneys would glad to sit down and discuss your individual situation. Contact us today to schedule a free consultation so we can provide solutions tailored just for you.