Anxiety levels have soared among the lower and middle class as the GOP instigates a tax bill overhaul proffering hefty cuts to corporations and the highest-earning 1%. But most income brackets will see a boost in take-home pay – a blip for some earners and a bump for others. Find out where you stand.
The tax brackets have shifted. What does that mean for me?
First, determine your tax rate based on your income bracket. In a nutshell, the middle class (defined by Pew Research as those earning $39,560-$118,080) sees their taxes slashed from 25 percent to 22 percent.
Here’s the good news for married taxpayers filing jointly: the Republican tax bill shifts the seven income brackets upwards, so that the larger tax rates are introduced at higher increments. Conversely, higher rates kick in earlier for middle-class single filers — but the well-heeled can take solace in knowing the highest tax bracket just jumped from $418,401 to $500,001 and up.
Tax brackets for single filers
Tax brackets for married taxpayers filing jointly
The personal exemption has been repealed! Does that mean I get a smaller tax deduction?
Not necessarily. Personal exemptions are for those who score a larger deduction by itemizing expenses such as a mortgage or state and local taxes, rather than accepting the standard deduction. In 2017, the standard deduction for a single taxpayer was $6,350 plus one personal exemption of $4,050 per taxpayer, usually claimed by those with incomes less than $100,000, which constitutes about 70 percent of Americans. The new law combines these into one larger standard deduction for 2018: $12,000 for single filers and $24,000 for joint filers (up from $12,700).
The hike in standard deductions most benefits childless married couples, while married couples claiming multiple dependents claim a more modest deduction ($24,000 regardless of income), potentially offset by an enhanced child tax credit of $2,000 per child under age 17 (up from $1,000).
Can I still itemize under Schedule A?
Yes, but beware of changes to Schedule A items. The bill imposes a $10,000 cap on state and local taxes (including property tax) which you can deduct from your federal income taxes, so if you reside in a high-tax state, you should budget accordingly. Furthermore, a number of items are no longer itemizable: casualty and theft losses (exempting areas beset by natural disaster), the cost of tax preparation, investment fees, bike commuting ($20/month), unreimbursed job expenses and moving expenses.
I’m looking to buy or sell a home. What should I be aware of?
Your current mortgage-interest deductions won’t be affected, but if you move, your mortgage deduction will shrink from $1 million to $750,000 for married filers and $500,000 to $375,000 for single filers. These adjustments could make homeownership less affordable in pricey markets.
So what’s the verdict?
See below for an at-a-glance rundown of your filing status.
|You’re Single, with No Children||You’re Married Filing Jointly, with No Children||You’re Married Filing Jointly, with Two Children|