As a consequence of the latest tax reform, there are going to be changes in Federal revenue tax charges for nearly all taxpayers. The charges of some of the taxpayers’ are likely to change greater than others. A closer look into the new tax rates and corresponding brackets will help shed some insight into the possible impact that will ensue.
The following tables compare and contrast the changes in the Tax rates and brackets for 2017 and 2018 along the Single and Married filing categories.
A clear dip by an average of 2% to 4% in the tax rates is pretty apparent while going over the tables. These dips arise mainly out of the Tax Cuts and Jobs Act. However, the lowest rate – 10% remains unchanged. Another point to be noted is that, it isn’t just the tax rates that have been changed, but also the brackets within which they fall, and this has been done not just to adjust inflation.
For instance, in the Single filer’s category let us consider the 24% tax bracket for 2018, which has been brought down by 4% from a thumping 28%. Simultaneously, it must be noted that the in 2017, the 28% tax rate was applicable to income levels between $93,701 and $195,450, where as in 2018 this bracket ranges between $165,001 all the way to $315,000. So, in other words, not only has the tax rates come down, but the brackets have also been readjusted so as to accommodate more income in the lower tax brackets too.
Income under the lens of Taxation
It’s a fairly common misconception to think that when a particular income reaches a certain bracket level, the entire income would be subjected to a tax deduction of the tax rate corresponding to that bracket level. It has to be understood that the only the taxable portion of the income is taxed at the applicable bracket rate. Say for example, a single person makes $10,000. He/ She would have to pay a flat 10% on the first $9,525 of the income and 12% on the remainder of the income. The taxable incomes referred to in the tables above are your income after all your adjustments and deductions.
Tax Bracket Implications:
Your tax bracket rate is the amount you pay on each additional dollar you earn. You can use that information to determine how much you get to keep if you earn another dollar, or how much good a deduction does you. So it is important to know what bracket you come under.
Does a drop in tax rate mean a lesser Tax Bill?
It is highly probably that a dip in the tax rate of your bracket could translate to a lower Tax Bill. However, it has to be noted that the new tax law changed more than just the tax rates. It has also doubled the standard deduction, eliminated personal exemptions and added expanded credits for dependents. It has also changed the rules for deducting state and local and mortgage interest among other things. Your tax bill may go down, but along the high income spectrum, some may find that they now pay more.
It’s always wise and smart to estimate your taxes during the year to make sure you’re not overwhelmed by a big tax bill when you file your return. It’s also important to ensure that the IRS doesn’t hold any money that you don’t owe them in case you’re overpaying. Though the money will eventually return in the form of a tax refund, why let them hold it all year interest-free?
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** The images and statistical data used in this blog are a product of research of various websites. All references used are purely for informational purposes only. Consult your own tax, legal and accounting advisors before engaging in any transaction.
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