Credit: What's in the new tax reform law for individual taxpayers? The new tax rules retain seven federal income tax brackets. But a key change lowers most individual income tax rates. The top marginal rate drops to 37% from 39.6%. And the income levels to which the rates apply also adjust.
[ibd-display-video id=3046116 width=50 float=left autostart=true] Many taxpayers will need higher income to be bumped up into a higher bracket. For example, a single filer with $90,000 of taxable income would be in the 25% bracket in 2017. Under the new rules he or she would be in the 24% bracket. And a single filer gets hit with a 39.6% rate in 2017 if his or her taxable income is more than $426,700. Under the new rule, he won't be in the new top rate of 37% unless his taxable income is more than $500,000.
Still, some taxpayers make out worse under the new rules. The top of the old 28% bracket is $195,450. Under the new rules, there is no 28% bracket. A single filer with that level of taxable income would be in the 32% bracket.
Impact In Dollars
How will the changes impact your tax bill?
Suppose you have $90,000 in taxable income this year and you are a single filer. You have no deductions for kids or anyone else. You take the standard deduction. Your 2017 federal income tax bill will be $15,639, according to Tim Steffen, director of advanced planning for Baird Private Wealth Management.
Under the new rules, your tax bill in 2018 would go down to $13,100. "This is primarily due to the near-doubling of the standard deduction and the lower marginal tax rates," Steffen said.
A married couple filing jointly, with the same $90,000 in taxable income and the same circumstances, would see a comparable benefit. Their 2017 tax would be $9,448, and in 2018 that would decline to $7,539.
Steffen added, "If you add kids to either of those scenarios, the savings would be even greater due to the larger child credit in 2018."
Additional Benefits
Another beneficial change concerning tax brackets and rates: brackets and other provisions will be indexed by what's known as the chained consumer price index ( CPI ) measure of inflation. That means that income limits for each tax bracket will be adjusted for inflation. The idea is to prevent bracket creep - pushing people into higher income tax brackets by inflation even when they don't have any increase in real income.
There are additional changes. The personal exemption has been killed. In its place, the standard deduction rises to $12,000 for single filers, to $18,000 for heads of household and to $24,000 for joint filers.
Those are up from $6,500, $9,550 and $13,000 respectively under the old law.
And in any case, the new brackets, rates and income levels expire on Dec. 31, 2025.
Here are the new tax brackets and rates for single filers:
And here are the new brackets and income levels for married people who file jointly:
RELATED:
6 Big Rule Changes For Individuals In The New Tax Bill
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
