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The New Tax Brackets and Standard Deductions

Guaranteed Rate does not provide tax advice. Please contact your tax advisor for any tax related questions.

The Tax Cuts and Jobs Act (TCJA) was signed into law on December 22, 2017. Part of this law changes the standard deductions taxpayers can take every year. The legislation also made major changes to the tax codes and represents the biggest shift in the tax law in decades. What do these changes mean to you?

Changes in the Standard Deduction

While the standard deduction can vary depending on your income, age and filing status, the standard deduction for many taxpayers increased substantially, effective tax year 20181, 2. Here are the changes in the standard deduction between tax years 2017 and 2018:

Standard Deduction, tax year 2017                            Standard Deduction, tax year 2018

Single or Married Filing Separately - $6,350             Single or Married Filing Separately - $12,000

Married Filing Jointly - $12,700                                Married Filing Jointly - $24,000

When you file taxes next year, you will need to choose whether to itemize deductions or take the standard deduction—it’s one or the other.3 Also, remember that you cannot take the standard deduction if you’re married filing separately and your spouse itemizes deductions.Deductions for State and Local Taxes (SALT) have been capped at $10,000. Due to this cap and the large increase in the standard deductions, itemizing deductions such as mortgage interest, real estate taxes or PMI may no longer be your best option. Keep your options open, and if you’re interested in learning more about these deductions, visit IRS.gov. or consult your CPA or other tax professionals.

The New Tax Brackets

The Short Term

You may have already noticed a difference in your paychecks. The IRS published the updated tax tables5 on January 11, 2018. Notice 136 [url: https://www.irs.gov/forms-pubs/about-notice-1036] contains the updated tables for income tax withholding which had to be implemented by February 15, 2018.

The Long Term

So how do the changes from the TCJA impact your annual tax filing? The IRS published Internal Revenue Bulletin (IRB): 2018-10 on March 5, 2018 for tax year 2018 tax tables.6, 7 The new tables show the tax rate most taxpayers will pay, depending on their filing status. There are still seven tax brackets for Single/Married Filing Separately and Married Filing Jointly taxpayers but some of the tax rates and income limits have changed.8 Here is a breakdown (changes in bold):

Single/Married Filing Separately

2017 tax year

2018 tax year

Tax Rate

Income

Tax Rate

Income

10%

$0-$9,525

10%

$0-$9,525

15%

$9,525-$38,700

12%

$9,525-$38,700

25%

$38,700-$93,700

22%

$38,700-$82,500

28%

$93,700-$195,450

24%

$82,500-$157,500

33%

$195,450-$424,950

32%

$157,500-$200,000

35%

$424,950-$426,700

35%

$200,000-$500,000

39.6%

$426,700+

37%

$500,000+


Married Filing Jointly

2017 tax year

2018 tax year

Tax Rate

Income

Tax Rate

Income

10%

$0-$19,050

10%

$0-$19,050

15%

$19,050-$77,400

12%

$19,050-$77,400

25%

$77,400-$156,150

22%

$77,400-$165,000

28%

$156,150-$237,950

24%

$165,000-$315,000

33%

$237,950-$424,950

32%

$315,000-$400,000

35%

$424,950-$480,050

35%

$400,000-$600,000

39.6%

$480,050+

37%

$600,000+

As always, we encourage you to consult with a CPA or other tax professional to find answers to your unique situation, as there are many factors that can impact individual tax returns.

References
1 https://www.nar.realtor/tax-reform/the-tax-cuts-and-jobs-act-what-it-means-for-homeowners-and-real-estate-professionals#Current%20and%20Prospective%20Homeowners

2 Part III–Tax Benefits for Families and Individuals. Sec. 11021. Increase in Standard Deduction

3 https://www.irs.gov/credits-deductions/individuals/standard-deduction-at-a-glance

4 https://www.irs.gov/taxtopics/tc551

5 https://www.irs.gov/newsroom/2018-withholding-tables-now-available

6 https://taxfoundation.org/2018-tax-brackets/

7 https://www.irs.gov/irb/2018-10_IRB#RR-2018-06

https://taxfoundation.org/final-tax-cuts-and-jobs-act-details-analysis/

Disclaimer:

Note that the information contained here should not be construed as financial advice. You should always defer to your tax professional or CPA with any questions regarding available deductions.

All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Guaranteed Rate, Inc. does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Guaranteed Rate, Inc. Guaranteed Rate, Inc. its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.


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All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Guaranteed Rate, Inc. does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Guaranteed Rate, Inc. Guaranteed Rate, Inc. its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.