2017 Tax Reform - Implications for Medical Trainees


By now you've heard that the Republican tax bill - titled "Tax Cuts and Jobs Act of 2017" - has passed both chambers of the US Congress and is on its way to be signed by President Trump. There are many current debates on the issue with strong voices in both the pro and the against camps. I will try my best to stay out of the political quicksand. Instead, I want to take a look at the most important provisions of the new tax bill and how that will affect your tax bill starting in 2018.

1.  New Tax Brackets

While the new tax bill did not deliver on the promise of tax returns so simple you can file it on a postcard, it did cut the income tax rates for every single tax bracket. Most medical residents and fellows will fall into the 22% marginal tax bracket, which is reduced from 25% under current law. While you may think that a 3% cut isn't much, keep in mind that the 15% bracket was also cut to 12% and the effect is compounded by our marginal tax system.

For example, say you're a single resident with a taxable income of $40,000, you will save 3% on all income between $9,525 and $38,700 ($875.25) and 3% on all income above $38,700 ($39) for a total tax savings of $914.25.

FPMD Verdict - WIN

2. Increased Standard Deduction

A "deduction" goes to offset your gross income for a lower taxable income. The new tax bill provides for nearly double the standard deduction under the current law. 

  • For single filers, the new standard deduction is $12,000, up from $6,350
  • For married filers, the new standard deduction is $24,000, up from $12,700.

Since most medical trainees will end up taking the standard deduction rather than itemizing deductions, it is easy to see how this can decrease your tax bill.

FPMD Verdict - WIN

3. New Family Tax Credits

The new tax bill doubles the current child tax credit from $1,000 to $2,000, up to $1,400 of which is refundable. It also provides a $500 non-refundable tax credit for other types of dependents who are not children (such as elderly parents), which did not exist previously. Obviously whether you can benefit from this change will depend on whether you have kids or take care of other types of dependents, so your mileage may vary.

FPMD Verdict - Qualified win

4. Mortgage Interest Deduction Limited to $750,000 in Mortgage

The new tax bill adjusts down the limit on mortgage interest deduction on newly purchased homes to $750,000 from $1,000,000 under the current law. Which means if you are living it up in a $1 million McMansion, the mortgage interest on that last $250,000 is not deductible. At an APR of 4.0%, that translates to $10,000 in mortgage interest that is no longer deductible under the new law. Now I would argue you have no business living in a $1 million house as a trainee, which is why I give this provision a...

FPMD Verdict - WASH

5. State and Local Tax (SALT) Deduction Capped at $10,000

Under current law, the state and local income, property and sales taxes that you pay is deductible on your federal income tax return - the so called "SALT" deduction. The new tax bill keeps the SALT deduction but caps it at $10,000. According to the Tax Foundation - more than 88% of the SALT benefits go to those with incomes in excess of $100,000. Which means most medical trainees will not be affected by the new cap.

FPMD Verdict - WASH

6.  Student Loan Interest Deduction Intact

I've glad to report that despite an earlier version of the bill that does away with the student loan interest deduction, the final tax bill keeps this benefit intact. For 2018, you will still be able to deduct up to $2,500 in student loan interest paid on your income tax returns. Sure it is still subjected to a set of rules, most importantly the income limitations. I for one, am glad this deduction was saved.

FPMD Verdict - WIN

7.  Moving Expense Deduction Eliminated

As someone who has moved several times for medical training - from Missouri to Arizona for internship and Arizona to Florida for residency - I will be moving again soon to complete my fellowship training. I'm sad to report that the valuable moving expense deduction has been eliminated in the new tax bill.

FPMD Verdict - LOSS

8. Grad Student Tuition Waivers Remain Untaxed

For a short while, grad students were freaking out about the Republican tax bill. I'm glad to report that the final bill keeps grad student tuition waivers untaxed. While this affects PhD students much more so than medical students, I must remind you that the NIH still supports 900 Medical Scientist Training Program (MSTP) trainees. So yes, our brethren who are pursuing an MD/PhD degree can finally relax and breathe freely.

FPMD Verdict - WIN

The Tax Cuts and Jobs Act of 2017 is a BIG deal and there are many more changes which are better covered elsewhere. I chose to focus on the above 8 because I believe these are the changes (or lack of change) that will most directly impact the tax bill of medical trainees. In the short term, it would appear that most of us will benefit from the new tax bill in the "cash in your pocket" sense. Of course, the long term economic impacts of the bill are under heated debate and yet to be seen. If you are interested in seeing how people in different income and family situations will fare in 2018 under the new law, I recommend checking out the New York Times Tax Bill Calculator: Will Your Taxes Go Up or Down? 

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Future Proof, MD

Dr. Bo Liu is an aspiring radiologist-in-training and the founder and editor of the White Coat Money Blog.  He has an interest in interventional radiology and helping his medical colleagues get ahead in this mad world of medicine and money.  When he's not crushing the list at the PACS station or typing up your next favorite blog post, you can usually find him at the local badminton club, movie theater or the most recently opened restaurant.