EMU Today

Dr. Linda Burilovich is a Professor of taxation in the Department of Accounting and Finance at Eastern Michigan University, and currently serves as Director of EMU’s Master of Science in Taxation program.   

She took time out recently to share her perspective on how the new, recently passed federal tax law might specifically affect members of the EMU campus community.

Question: Do you think the tax bill generally benefits EMU faculty, staff and students?

Answer: I expect that most of the EMU community will see positive benefits from the new tax law, including a much simpler calculation of taxes and a lower tax liability overall.

 For those who rely on itemized deductions to lower taxable income, there may be some disappointment, since the state and local tax deduction has been limited to $10,000 and miscellaneous deductions are no longer allowed.

The mortgage deduction was retained but is now subject to a $750,000 principal limit. 

These eliminations will hopefully be offset by the lower rates and increased credits. The retention of the major education benefits is probably the most significant for EMU community members.

Q: Do you have any strong concerns about the new law?

A: My primary concern with the new tax bill is that many of the new rules are subject to a sunset provision, which means that certain changes will expire within a given period.

I believe this has a negative effect in the economic environment when business entities can’t determine the long-term effects of tax planning with certainty. It obviously affects tax planning for individuals as well.

The lower rates will expire in 2025, and if no legislative action is taken, we will revert back to the old rates. This might prompt both individuals and companies to accelerate recognition of income or defer deductions in anticipation of the reversion to higher rates in a future period.

I believe a permanent rate structure and consistency in tax rules would promote better financial planning for all taxpayers.

Q: What are the general effects of the new tax law that will impact the EMU community?

A: There is an overall lowering of the individual tax rates that should ultimately benefit most taxpayers.  In addition to lowering the marginal rates, the brackets were widened, which means that slightly more income is taxed at the lower rates.

The other effect of the changes will be on the tax base or taxable income. This effect will vary among taxpayers.  For those who don’t itemize, the doubling of the standard deduction should be very beneficial.  Although we can no longer deduct exemptions for ourselves and our dependents, for many taxpayers that increase to taxable income will be offset by the increase in the child tax credit. 

There are also some very interesting changes in business taxation that are expected to have far-reaching effects. The lowering of corporate tax rates and a new very favorable deduction for smaller pass-through businesses could have a significant effect on the economy and the job market. 

The hope is that this results in more job opportunities available to our students.

Q: The tax benefits available to those enrolled in higher education have benefited EMU students.  Are there changes in the new law that affect the availability of these benefits?

A: There are numerous tax provisions that historically aimed at making education more affordable for students.  They have included the student loan interest deduction, the tuition deduction, the education credits and the graduate student tuition waiver.

The deduction for tuition was set to expire at the end of 2016, however, it was extended to the end of the 2017 tax year by the recent Bipartisan Budget Act of 2018.  The student loan interest deduction remains unchanged at a maximum of $2,500 with a phase-out at an adjusted gross income (gross income minus specific deductions, or AGI) of $80,000 for singles and $165,000 for married taxpayers.  These amounts will continue to be indexed for inflation on a yearly basis.

The education credits are generally the most important tax benefit available for students. They remain unchanged at a maximum credit of $2,500 for the American Opportunity credit available to undergraduates and a maximum credit of $2,000 for the Lifetime Learning Credit available to all students of higher education. Both credits continue to be subject to a phase-out, depending on the taxpayer’s AGI. 

The exclusion available for the graduate student tuition waiver also remains unchanged for graduate students engaged in teaching or research at a university. 

Q: Some of our students with families will be concerned about changes affecting child care and related deductions.  Will there be positive changes for them?

A: Possibly the most important change affecting families is the increase in the child tax credit, which has doubled from $1,000 to $2,000 per child, and may be refundable up to $1,400 depending on the taxpayer’s income level.

This should have an effect of lowering the tax liability. For example, a taxpayer in the 25 percent bracket who claimed an exemption for a dependent child in 2017 saved $1,012 as a result of that deduction. That same taxpayer will save $2,000 in 2018 when they claim the child tax credit for their dependent child.

Many families were also concerned that the credit for child and dependent care would be changed or eliminated. This is a credit available for the cost of child care to working parents or parents who are full-time students. It will remain the same, with a maximum credit of $3,000 for one child or up to $6,000 for two children.