Changes to tax rates and brackets will be vital for preparing your 2018 returns.
On December 22, 2017, U.S. President Donald Trump signed the Republican tax bill, Tax Jobs and Cuts Act. This was perhaps the biggest tax overhaul since 1986 when the Tax Reform Act came into play. And while it has presented changes and alterations that may confuse U.S. citizens and green card holders upon first glance, it has also simplified some aspects of the tax filing process. In fact, you may find some benefits.
When you file your taxes in April 2019, it will be the first tax season under this law and you’ll want to take the following information into consideration:
Tax brackets, rates and statuses
There are still seven tax brackets, determining the percentage of your federal income that will be taxed. However, the rates are slightly lower and the ranges of income have changed. The tax brackets are: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Depending on your filing status, the federal income range differs. As always, the four main statuses are: Individual (Single); Married Individuals Filing Jointly (or Surviving Spouses); Married Individuals Filing Separately; and Heads of Household.
You will file under one of the possible statuses however, depending on your income, you could be taxed at up to seven different rates.
How can that be
The higher your income, the more tax rates you need to consider. For example, if you are an Individual Taxpayer who earns an annual salary of $30,000, the first $9,525 of your income falls into the 10% tax bracket while the remaining $20,475 will be taxed at the 12% rate. This is illustrated in the first table in the following section. This is no different from previous years, however the different ranges of taxable federal income could cause you to fall into fewer, or perhaps even more categories. So let’s take a look at those numbers…
The new tables
For Individual Taxpayers:
| Taxable Income is between… | …then your Tax Rate is: |
| $0 – $9,525 | 10% of Taxable Income |
| $9,526 – $38,700 | $952.50 + 12% of amount over $9,525 |
| $38,701 – $82,500 | $4,453.50 + 22% of amount over $38,700 |
| $82,501 – $157,500 | $14,089.50 + 24% of amount over $82,500 |
| $157,501 – $200,000 | $32,089.50 + 32% of amount over $157,500 |
| $200,001 – $500,000 | $45,689.50 + 35% of amount over $200,000 |
| $500,001 + | $150,689.50 + 37% of amount over $500,000 |
Married, Filing Separately:
| Taxable Income is between… | …then your Tax Due is: |
| $0 – $9,525 | 10% of Taxable Income |
| $9,526 – $38,700 | $952.50 + 12% of amount over $9,525 |
| $38,701 – $82,500 | $4,453.50 + 22% of amount over $38,700 |
| $82,501 – $157,500 | $14,089.50 + 24% of amount over $82,500 |
| $157,501 – $200,000 | $32,089.50 + 32% of amount over $157,500 |
| $200,001 – $300,000 | $45,689.50 + 35% of amount over $200,000 |
| $300,001 + | $80,689.50 + 37% of amount over $300,000 |
Married, Filing Jointly (or Surviving Spouses):
| Taxable Income is between… | …then your Tax Due is: |
| $0 – $19,050 | 10% of taxable income |
| $19,051 – $77,400 | $1,905 + 12% of amount over $19,050 |
| $77,401 – $165,000 | $8,907 + 22% of amount over $77,400 |
| $165,001 – $315,000 | $28,179 + 24% of amount over $165,000 |
| $315,001 – $400,000 | $64,179 + 32% of amount over $315,000 |
| $400,001 – $600,000 | $91,379 + 35% of amount over $400,000 |
| $600,001 + | $161,379 + 37% of amount over $600,000 |
Heads of Household:
| Taxable Income is between… | …then your Tax Due is: |
| $0 – $13,600 | 10% of taxable income |
| $9,526 – $38,700 | $1,360 + 12% of amount over $13,600 |
| $38,701 – $82,500 | $5,944 + 22% of amount over $38,700 |
| $82,501 – $157,500 | $12,698 + 24% of amount over $82,500 |
| $157,501 – $200,000 | $30,698 + 32% of amount over $157,500 |
| $200,001 – $500,000 | $44,298 + 35% of amount over $200,000 |
| $500,001 + | $149,298 + 37% of amount over $500,000 |
Standard deductions
Personal and dependent exemptions have been combined into a larger lump sum, along with the standard deduction. In fact, individual taxpayers could experience a benefit as these deductions have significantly increased.
Standard deductions occur when you file your taxes, but filing your tax return is only necessary for U.S. citizens and residents who meet the gross income requirements.
You need to file your tax return if you are…
- An Individual whose gross income (income earned before any taxes have been taken out) for the taxable year is greater than the standard deduction for individual taxpayers.
- Married and filing jointly and whose gross income when combined with spouse’s gross income is greater than the standard deduction for Married Filing Jointly.
Based on your filing status, the standard deduction will appear as the following:
| Status | Standard Deduction |
| Individual (Single) | $12,000 |
| Married, Filing Separately | $12,000 |
| Married, Filing Jointly (or Surviving Spouse) | $24,000 |
| Heads of Household | $18,000 |
The standard deduction rates have nearly doubled for each of the four statuses, though both political science and public opinion have been arguing since the bill’s passing whether it will be a short term relief for taxpayers, or if it will have an actual long term benefit for the U.S. economy. What’s your opinion on this matter?
We’ll discuss what changes the new tax law will bring to businesses in our next article!
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