It’s still not official, but it’s getting closer. UPDATE: Became official on 12/22/17.
A major change:
- Your Gross income will be adjusted immediately by AT LEAST $12,000 for single filers, $18,000 for Head of Households, and $24,000 for Married Filing Joint. This is before any itemizations or credits. The standard deduction under the old tax code was $6,300 single, $9,300 Head of Household, $12,600 Married Filing Joint.
- HOWEVER, the Personal Exemptions are no longer in effect. This was $4,050 for yourself, $4,050 for a spouse, and $4,050 per dependent.
The Child Tax Credit thresholds were $110,000 in the case of a joint return, $75,000 in the case of an individual who is not married, and $55,000 in the case of a married individual filing a separate return. The deduction was $1,000 per qualifying child. Under the new code the threshold amount is $400,000 in the case of a joint return ($200,000 in any other case) and the deduction is $2,000 per qualifying child. In addition, the credit increases by $500 for each non qualifying dependent. We’ll examine this credit in more depth later.
Trying to calculate the effect on you? If you don’t typically itemize:
- For a single/married filing separate person, jump up and down for joy! You were just handed about $1,650!!!
- For a Head of Household – If you only have one dependent, then jump for joy! You were handed about $4,950! If you have more kids, well it get’s tricky because you might get a child tax credit.
- For a Married Joint filer with no children, jump for joy, you were just handed about $3,700. With kids, one kid will cost you $350, ouch! But hold your horses, if you keep reading, we might find you some money.
It’s hard to tell you straight up the effect on you if you itemize or qualify for any credits. We’ll look at the effects of those in a separate blog. For now, we’re just going to deal with Gross pay – Standard Deduction = Taxable Income, okay? Good. 🙂
How do the new tax brackets stack up next to the old? Here it is.
This may be a little hard to understand (and to read). The wide columns in the back are the TAXABLE Tax Bracket Income Thresholds from 2017, the stack columns in the front are the proposed New TAXABLE Tax Bracket Income Thresholds. If you can read it, find your TAXABLE Income level on the scales on either side of the chart, and then trace across to see what bracket you used to be and what bracket you are in now. Keep in mind this is your TAXABLE income, which is the amount AFTER all the deductions and credits.
Here are some examples of what this chart can tell us.
- The old bracket of 15% is now split between 10% and 12%.
- The old 28% bracket is now split between 12% and 22%.
- The old 31% bracket is now split between 22% and 24%.
- The old 36% bracket is now split between 24% and 32%.
- The old 39.5% bracket is now split between 32% and 35%.
- There is a new bracket of 38.5 % made up of those making over $500,000 ($1,000,000 Married joint) who used to be in the 39.5% bracket.
- Every old tax bracket received a cut.
How does this affect the pockets? Here is the same type of chart showing the calculated tax based on TAXABLE income for the top income of each bracket (except the top bracket which shows the minimum income for that bracket).
Little help in reading this chart, the colors are coordinated. So if you see the orangy color in the background, it would be similar to the orangy color in the front column. yellow to yellow, green to green, etc. The top two (light gray and white) are the new brackets. Really, this chart shows how much less you might pay within your tax bracket.
Here are a few examples.
- The average minimum wage across the US is about $7.25/hr which equates to about $15,000 per year. The standard deduction is $12,000, so right off the bat your taxable income has dropped to $3,000. Under the old tax code, the taxable income would have been about $4,650, and would fall into the 15% tax bracket and tax owed would be about $698. Under the new tax code it would fall into the 10% tax bracket and cost about $300.
- If we are looking at an average income of $60,000 a year for a single person the taxable income would be $49,650 @ 28%, for $11,029 in taxes. Under the new code it would be about $48,000 @ 22%, and cost ya about $6,500.
- A single person making $200,000, had taxable income of $189,650, 36% bracket, $61,772 tax owed. Under the new bill, taxable income would be $188,000 @ 32% for $41,900 in tax.
- And at the old top bracket of 39.6%, someone making $600,000 is moving from $589,650 to $588,000 in taxable income. At the old 39.6% the tax would be $214,273, now it’s 38.5% for tax of $184,620.
- A Married Filing Joint couple with two kids making $80,000 is looking at a taxable income of about $51,200 under the old code, in the 28% tax bracket, and owing $11,463. Under the new code, it’s a taxable income of $55,600, 22% tax bracket of, and owing $8,172. So looky, looky what we found, you’d save $3,291 under the new tax bill.
- A Married Filing Joint couple – $80,000, for those who do not have a qualifying child to take the tax credit, but most likely they are.
- 4 kids: Old code $43,100 @ 28% = $9,195. New code saves you $1,023.
- 6 kids: Old code $35,000 @ 28% = $6,927. New code costs you $1,245 (with one qualified child, it would save you).
- 8 kids: Old code $26,900 @ 28% = $4,659. New code costs you $2,268 (with one qualifying child it would save you).
I think that’s enough to boggle your brain for now.
Tax information sources:
Read Part 2: Itemized Deductions; Personal Exemptions