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New Year, New Tax Brackets: What is Different in 2018?

New Tax Brackets in 2018

By now you’ve probably heard about the Tax Cuts and Jobs Act that was signed into law by President Donald Trump late last month. The Act makes changes to the tax code and affects most American taxpayers. Among these changes are modifications to the federal income tax brackets. While the new legislation still follows the same seven-bracket structure, the income levels and tax rates have changed.

New Tax Brackets

In 2017, the federal income tax brackets were 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent. The new brackets are 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent. The Act reduces corporate tax rates permanently and individual tax rates until 2026. The new tax brackets can be seen below:

Taxable Income for Single Filers Tax Rate
$0 – 9525 10%
$9525 – 38,700 12%
$38,700 – 82,500 22%
$82,500 – 157,500 24%
$157,500 – 200,000 32%
$200,000 – 500,000 35%
$500,000 and up 37%

 

Taxable Income for Head of Household Tax Rate
$0 – 13,600 10%
$13,600 – 51,800 12%
$51,800 – 82,500 22%
$82,500 – 157,500 24%
$157,500 – 200,000 32%
$200,000 – 500,000 35%
$500,000 and up 37%

 

Taxable Income for Married Filing Joint Tax Rate
$0 – 19,050 10%
$19,050 – 77,400 12%
$77,400 – 165,000 22%
$165,000 – $315,000 24%
$315,000 – 400,000 32%
$400,000 – 600,000 35%
$600,000 and up 37%

 

The Act doubles the standard deduction, eliminates personal exemptions as well as many itemized deductions.

Calculating Your Tax Rate

Tax brackets show the tax rate you are expected to pay on each portion of your income. This progressive system ensures that all taxpayers pay the same rate on the same levels of taxable income. The more income you make, the more taxes you pay.

Under the new brackets, an individual that makes $40,000 in 2018 would pay 10% tax on the first $9525 and 12% tax on the remaining $30,475. This rule applies to all taxable income; the tax rate increases in increments until you’ve reached the top level of your income.

The amount of money you actually owe will depend on a variety of factors. The percentage of your income that goes to the IRS is referred to as your effective tax rate. This number is generally lower than the percentage paid throughout the year.

Current Changes

Americans claiming the standard deduction will see a slight increase to their paychecks beginning in February. Aside from this, most Americans will not be affected by the new legislation until they file their 2018 taxes.

Please contact us for more information.

 

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