On the Friday before Christmas, President Trump signed the new tax reform bill into law. The Tax Cuts and Jobs Act will take effect January 1, 2018, but when will most taxpayers see the effects? When will they see more money in their wallets?
How much will the new Tax Cuts and Jobs Act save you?
It depends on what your income level is, how much comes from traditional employee work or investment income, and other factors such as children dependents. It has been estimated that a typical taxpayer earning $40,000-$50,000 per year will save around $1,000-$2,000 per year (the higher number for taxpayers with children). Those with higher income, business owners and those with significant investment income are projected to see the biggest tax cuts, as this is intended to spur economic growth.
When will regular taxpayers see the extra money?
For individuals, the tax reform bill takes effect January 1, 2018, for income earned starting in 2018. If you get a tax cut, you may not see the overall results until you file next year’s taxes (taxes for 2018, which will be due in April 2019). The taxes we are about to start filing are for tax year 2017.
People who work a “regular” job, and have taxes withheld from their paychecks, will likely see a change in their federal income tax withholding starting in early February. For a taxpayer who gets a $1,000 tax cut, this could mean an extra $38 or so per paycheck (if paid every other week). Those receiving a $2,000 tax cut, may see an increase of about $76 per biweekly paycheck. The amount can vary significantly, so to get a more accurate assessment, visit a tax professional and ensure that your company’s payroll department has accurate withholding information on an up-to-date Form W-4.
New Tax Brackets
Among the main changes are new tax brackets and the elimination of many itemized deductions. In general, the new tax rate structure means lower brackets for most filers, with the top rate dropping to 37% from 39.6%. The 10% bracket now extends to almost $10,000 for individuals and $19,000 for joint filers, which doubles the amount of income taxed at the lowest rate. The standard deduction has also been doubled. The corporate tax rate is permanently dropped from 35% to 21%.
|Tax Rate||Income Range for Individuals||Income Range for Married Joint Filers|
|10%||$0 – $9,525||$0 – $19,050|
|12%||$9,526 – $38,700||$19,051 – $77,400|
|22%||$38,701 – $82,500||$77,401 – $165,000|
|24%||$82,501 – $157,500||$165,001 – $315,000|
|32%||$157,501 – $200,000||$315,001 – $400,000|
|35%||$200,001 – $500,000||$400,001 – $600,000|
|37%||$500,001 and Up||$600,001 and Up|