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January 22, 2018 | Posted in:

How the Tax Brackets are Changing Under Tax Reform

A Look at the New Tax Brackets for Married Taxpayers.


 

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The Tax Cuts and Jobs Act of 2017 (TCJA) was the most significant tax law that we’ve had in decades. Whether you’re a middle class worker or a millionaire, the tax law will have an impact on you beginning in 2018. One of the most significant changes is the reduction of tax rates across the board.

 

Historical Tax Rates

In 2017, the last year before the TCJA takes effect, the tax rates ranged from a low of 10% to a high of 39.6%. The tax brackets were broken up amongst seven different rates. Here are the old tax brackets for married taxpayers filing a joint return:
 

Rate Taxable Income Bracket
10% Up to $18,650
15% $18,650 to $75,900
25% $75,900 to $153,100
28% $153,100 to $233,350
33% $233,350 to $416,700
35% $416,700 to $470,700
39.60% Above $470,700

 
 

TCJA Tax Rates

Starting in 2018, the tax rates have been reduced for all taxpayers. Also, the income ranges have changed as well. Here are the new 2018 tax brackets for married taxpayers filing a joint return:
 

Rate New Taxable Income Bracket
10% Up to $19,050
12% $19,050 to $77,400
22% $77,400 to $165,000
24% $165,000 to $315,000
32% $315,000 to $400,000
35% $400,000 to $600,000
37% Above $600,000

 
 

Analysis

Generally speaking, if we just consider the tax rate changes we are all going to see a tax break. For example, let’s assume that a married couple made $200,000 in 2017 and 2018. Last year, the couple would pay tax in the 28% bracket. That same couple would only pay tax at 24% in 2018. That’s a savings of 4%. As another example, let’s assume that a married couple made $500,000 in 2017 and 2018. Last year, the couple would pay tax in 39.60%. With the new law, they would see a savings of 4.60% and pay tax at 35%.
 

Keep in mind, however, that the TCJA contained over 1,100 pages of tax law changes. With that said, taxpayers should not look only at the tax rate changes and assume that you’re going to save money. Many of the deductions used to compute taxable income have been eliminated, including unreimbursed employee expenses, union dues, and home equity interest paid. Even with the reduced tax rates, these changes may still negatively impact you and your family’s tax situation.

 

Take Away

As stated earlier, if we just look at the tax rate changes we will see that everyone is generally better off. However, there are many other changes caused by the tax law that may impact you negatively. We would be happy to analyze your tax situation to help you determine whether the TCJA is ultimately good for you or not. Give us a call to schedule our appointment today.

 

Stay up-to-date on tax law change with our Tax Reform Resource Center 

Author:

Associate Partner
 
Ren III provides tax, accounting, and advisory services to a broad range of clients, with a specialty for manufacturers, title insurance companies, and professional service providers.
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