US Tax Reform: Impact on Individual Taxpayers
On 20th December 2017, the US Senate and House of Representatives approved the final version of the Tax Cuts and Jobs Act. The tax reform includes significant changes for both business and individual taxpayers. The changes are effective beginning in 2018 and expire after 2025. Beginning in tax year 2026, modified provisions would revert to 2017 law, as adjusted for inflation. Here are some of the provisions affecting individual taxpayers.
2018 Tax Brackets
The following tables show the 2018 tax brackets under the act:
| Single taxpayers |
|---|
| Taxable income over | But not over | Is taxed at |
| USD 0 | USD 9,525 | 10% |
| USD 9,526 | USD 38,700 | 12% |
| USD 38,701 | USD 82,500 | 22% |
| USD 82,501 | USD 157,500 | 24% |
| USD 157,501 | USD 200,000 | 32% |
| USD 200,001 | USD 500,000 | 35% |
| USD 500,001 | - | 37% |
| Heads of households |
|---|
| Taxable income over | But not over | Is taxed at |
| USD 0 | USD 13,600 | 10% |
| USD 13,601 | USD 51,800 | 12% |
| USD 51,801 | USD 82,500 | 22% |
| USD 82,501 | USD 157,500 | 24% |
| USD 157,501 | USD 200,000 | 32% |
| USD 200,001 | USD 500,000 | 35% |
| USD 500,001 | - | 37% |
| Married taxpayers filing joint returns and surviving spouses |
|---|
| Taxable income over | But not over | Is taxed at |
| USD 0 | USD 19,050 | 10% |
| USD 19,051 | USD 77,400 | 12% |
| USD 77,401 | USD 165,000 | 22% |
| USD 165,001 | USD 315,000 | 24% |
| USD 315,001 | USD 400,000 | 32% |
| USD 400,001 | USD 600,000 | 35% |
| USD 600,001 | - | 37% |
| Married taxpayers filing separately |
|---|
| Taxable income over | But not over | Is taxed at |
| USD 0 | USD 9,525 | 10% |
| USD 9,526 | USD 38,700 | 12% |
| USD 38,701 | USD 82,500 | 22% |
| USD 82,501 | USD 157,500 | 24% |
| USD 157,501 | USD 200,000 | 32% |
| USD 200,001 | USD 300,000 | 35% |
| USD 300,001 | - | 37% |
Capital Gains and Dividends
The taxation of capital gains and qualified dividends or the tax rates remain unchanged, but the income at which the 15% and 20% rates apply has been altered.
| Long-term capital gain and qualified dividend rate |
|---|
| Taxable income up to USD 77,200 for MFJ, USD 38,600 for single | 0% |
| Taxable income USD 77,201 to USD 479,000 for MFJ, USD 38,601 to USD 425,800 for single | 15% |
| Taxable income USD 479,001 and over for MFJ, USD 425,801 and over for single | 20% |
Personal Exemptions and Standard Deductions
The personal exemption has been eliminated and replaced with higher standard deductions. The standard deduction rises to USD 12,000 for single filers, to USD 18,000 for heads of household and to USD 24,000 for joint filers. These amounts are up from USD 6,500, USD 9,550 and USD 13,000 from last year. The additional standard deduction for elderly and blind taxpayers is retained.
State and Local Taxes
Individuals would be allowed to deduct up to USD 10,000 (USD 5,000 for married filing separately) in state and local income or property taxes. Any taxes paid relating to 2018 will not be deductible if prepaid in 2017.
There are more substantial tax law changes under the Tax Cuts and Jobs Act.
Should you require further details or assistance on the above, please contact us at tax@zetland.biz.
|
