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When the Tax Cuts and Jobs Act passed, people from every political persuasion had something to say about it. While there has been endless debate about whether the new tax laws are a good or bad thing, the reality is that it has now gone into place. When filing your 2018 taxes this year and next year’s 2019 taxes, you need to know about the new tax brackets and how they will impact your finances. This blog post explains the new tax rates under the new laws so you will know what you are expected to pay.
New Tax Brackets
There are a total of seven tax brackets, which are broken down based on your income. The tax brackets are the percentage of your taxable income that you will have to pay. Depending on your income, you will have to pay 10%, 12%, 22%, 24%, 32%, 35%, or 37% of your taxable income in taxes. There are quite a few deductions that will reduce your taxable income, and the way you file your taxes will also have a significant impact.
Base Income Brackets
The tax brackets are broken down based on your income. This starts off with a base set of taxes, but the specific amounts will adjust depending on how you file (married filing jointly, married filing separately, single, or head of household). The Base income for each tax bracket is as follows:
- 10% – $0 – $9525
- 12% – $9526 to $38,700
- 22% – $38,701 to $82,500
- 24% – $82,501 to $157,500
- 32% – $157,501 to $200,000
- 35% – $200,001 to $500,000
- 37% – $500,001 or More
Calculating Your Taxes
One of the biggest myths surrounding the federal income tax is that as you cross over into a new tax bracket, you will have to begin paying the new percentage on your entire income. This is not so. The lower tax brackets still apply to all income up to the maximum amount for each bracket. This means that it is impossible to end up bringing home less money (after taxes) after getting a raise. For example, if you were making $38,700 (the maximum amount for the 12% bracket) and you get a $1 raise so you are now making $38,701 (the minimum to be in the 22% tax bracket) your tax breakdown will be as follows:
- The first $9,525 will be taxed at 10%. This is a total of $952.50
- The amount from $9526 to $38,700 is taxed at 12%. This is a total of $3500.88 in taxes. Prior to the raise in this example, you would have paid $3500.88 plus $952.50 for a total of $4453.38.
- Everything over $38700 (in this case, just one dollar) will then be taxed at 22%. So, for this example, only the $1 raise would be taxed at the 22% rate, raising your taxes by just $.22 for the year.
If you have any questions about the new tax brackets and how they may affect the amount of taxes you owe, contact us today to discuss your situation and your options.
Weisberg Kainen Mark, PL
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