On December 15th, the Senate and House of Representatives prepared a draft of the Trump administration’s final tax bill. If and when it comes into effect, Americans will be faced with a number of changes in their tax compliance system. President Trump has announced, “We want to give you … a giant tax cut for Christmas and when I say ‘giant’ I mean giant.”
Is Trump’s “Christmas gift” worth celebrating or should Americans tighten their belts? In today’s blog post, we’ll take a look at how the new tax reform may impact Americans in 2018.
Will the Trump administration’s tax bill offer more benefits for individuals in 2018? According to the new tax plan, individual tax cuts will remain valid only until 2025 (while business cuts are going to be made permanent). However, the reform may be beneficial for families with higher than average incomes as the GOP has decided to change tax brackets and cut tax rates.
How the GOP Tax Bill Will Influence Single Taxpayers
Previously, the tax rates have been 10%, 15%, 25%, 28%, 33%, 35%, 39.6% for each of the seven tax brackets (both for single and joint filers). In 2018, single taxpayers will have to pay taxes according to new tax brackets and rates:
- $0 – $9,525 (10%)
- $9,525 – $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 more (37%)
Single taxpayers with annual incomes of $9,525 or less will have to pay the same 10% tax and report it on their IRS Form 1040. Individuals earning $500,000 or higher will be obliged to pay 37% of their income compared to the 39,6% they used to pay. According to new tax law, the standard deduction for single filers will be raised to $12,000, compared to its previous standing of $6,350.
How the GOP Tax Bill Will Influence Taxpayers Paying Jointly
Married couples filing their returns jointly are also going to face tax bracket and rate changes, according to the GOP tax reform. Use IRS Form 1040EZ to file your single or joint return for tax season 2018 and find out at what rate and in what tax bracket you’ll be taxed:
- $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 more (37%)
Households with an annual income of $19,050 or less will be taxed at the same 10% rate. Those earning $600,000 or higher will be taxed at 37% compared to the 39,6% they used to pay. The standard deduction for joint taxpayers will be raised to $24,000, up from $12,700 under previous tax law.
Americans in the lowest income bracket will pay the same tax rate they used to pay, while those earning more than $19,050 annually will receive a tax break. Regardless of tax rates, U.S. businesses and individuals are obliged to report their income to the IRS on time.