The passage of the Tax Cuts and Jobs Act in late 2017 set into motion sweeping changes to the tax code. As information came out regarding changes to the federal tax brackets, standard deduction, and personal exemptions, many people wondered, “How does this affect me?”

The elimination of personal exemptions is one of the major changes under the new tax legislation. Under the old tax law, in 2017, an exemption of $4,050 could be taken for the taxpayer, spouse, and each dependent but was limited for certain taxpayers with higher incomes. For example, a married couple filing jointly with three dependents could potentially have total personal exemptions of $20,250 (5 x $4,050). The personal exemption amount reduced taxable income, ultimately reducing the amount of taxes owed. Under the new tax law, personal exemptions have been eliminated.

However, to compensate for the elimination of personal exemptions, the standard deduction drastically increased under the new law. In 2017, the standard deduction was $6,350 if for those filing as single or married filing separately, $12,700 if married filing jointly, and $9,350 if filing as head of household. The new legislation increases the standard deduction to $12,000 for single taxpayers and taxpayers married filing separately, $24,000 for married couples filing jointly, and $18,000 head of household individuals.

However, the new tax law also eliminated or established caps on certain itemized deductions.  For example, the amount of state and local taxes, including income and property taxes, that can be deducted as an itemized deduction is now limited to $10,000. Because of the higher standard deduction and this limitation, many taxpayers may now find it more advantageous to take the standard deduction rather than itemize.

After factoring in the changes to personal exemptions and the standard deduction, you may find yourself in a new tax bracket. Under the new law, there are still seven tax brackets for individuals; however, the tax rates that apply to certain brackets have decreased, per the charts below. The taxable income range for each bracket has also changed, resulting in many taxpayers being placed in a lower tax bracket under the new law, even if their income has not significantly changed. The tables below show the income ranges under both the old and new brackets, as well as the corresponding tax rates.

Single – Old Brackets

Taxable Income Tax Rate
$0 – $9,325 10%
$9,326 – $37,950 15%
$37,951 – $91,900 25%
$91,901 – $191,650 28%
$191,651 – $416,700 33%
$416-701 – $418,400 35%
$ 418,401 or more 39.6%

Single – New Brackets

Taxable Income Tax Rate
$0 – $9,525 10%
$9,526 – $38,700 12%
$38,701 – $82,500 22%
$82,501 – $157,500 24%
$157,501 – $200,000 32%
$200,001 – $500,000 35%
$500,001 or more 37%

Married Filing Jointly – Old Brackets

Taxable Income Tax Rate
$0 – $18,650 10%
$18,651 – $75,900 15%
$75,901 – $153,100 25%
$153,101 – $233,350 28%
$233,351 – $416,700 33%
$416,701 – $470,700 35%
$470,701 or more 39.6%

 Married Filing Jointly – New Brackets

Taxable Income Tax Rate
$0 – $19,050 10%
$19,051 – $77,400 12%
$77,401 – $165,000 22%
$165,001 – $315,000 24%
$315,001 – $400,000 32%
$400,001 – $600,000 35%
$600,000 or more 37%

Married Filing Separately – Old Brackets

Taxable Income Tax Rate
$0 – $9,325 10%
$9,326 – $37,950 15%
$37,951 – $76,550 25%
$76,551 – $116,675 28%
$116,676 – $208,350 33%
$208,351 – $235,350 35%
$235,351 or more 39.6%

 Married Filing Separately – New Brackets

Taxable Income Tax Rate
$0 – $9,525 10%
$9,526 – $38,700 12%
$38,701 – $82,500 22%
$82,501 – $157,500 24%
$157,501 – $200,000 32%
$200,001 – $300,000 35%
$300,001 or more 37%

Head of Household – Old Brackets

Taxable Income Tax Rate
$0 – $13,350 10%
$13,351 – $50,800 15%
$50,801 – $131,200 25%
$131,201 – $212,500 28%
$212,501 – $416,700 33%
$416,701 – $444,550 35%
$444,551 or more 39.6%

Head of Household – New Brackets

Taxable Income Tax Rate
$0 – $13,600 10%
$13,601 – $51,800 12%
$51,801 – $82,500 22%
$82,501 – $157,500 24%
$157,501 – $200,000 32%
$200,001 – $500,000 35%
$500,001 or more 37%

If you have questions or would like to discuss how these changes will affect you, please reach out to us to set up an appointment.

By Kimberly Miller