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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.
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.
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…
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 |
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 |
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 |
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 |
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.
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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