Wednesday June 20, 2018
Tax Cuts and Jobs Act Single and Married Couple Examples
With passage of the Tax Cuts and Jobs Act, there will be substantial changes in tax payments for many Americans in 2018. A common question is, "What will the impact be on me?"
The nonpartisan Urban-Brookings Tax Policy Center has published seven examples for married couples and single persons. These examples are helpful in understanding how the substantial tax changes will affect individual taxpayers.
- Married Couple, Children Ages 10 and 12 - This married couple with $75,000 of family income in 2017 receives personal exemptions, takes the standard deduction and calculates the tax. The couple receives $2,000 in child tax credits and pays tax of $3,858 in 2017. In 2018, the same couple loses the personal exemption, but the standard deduction almost doubles to $24,000. They also have $4,000 in child tax credits. Their tax is reduced by $2,119 to a total of $1,739.
- Married Couple in High-Tax State - A married couple with adjusted gross income of $135,000 in 2017 will receive personal exemptions and be able to deduct their state and local taxes. Their tax is $15,508. In 2018, the same couple takes the $24,000 standard deduction rather than the itemized deduction and their tax is $16,299. Their tax has increased $792.
- Married Couple in Low-Tax State - The same couple with income of $135,000 lives in a low-tax state and has itemized deductions of $24,300 in 2017. Their tax bill is $16, 908. In 2018, the couple takes the $24,000 standard deduction and has tax of $16,299. The 2018 tax is $609 lower.
- Married Couple with No Children - This married couple with moderate income of $30,000 and no children takes the standard deduction in 2017. Their tax is $870. In 2018, they lose their personal exemptions but the standard deduction is nearly doubled to $24,000. Their tax of $600 is $270 lower.
- Single High-Earner with Wage Income - A single person with a substantial income of $250,000 will have itemized deductions in both years. The itemized deductions in 2017 are $46,000 and there is alternative minimum tax of $3,345. The total tax is $52,366. In 2018, the single person has itemized deductions of $30,500, has no alternative minimum tax and the total tax is $52,515. This tax is $149 higher.
- Single High-Earner who is Self-Employed - If the single person with income of $250,000 is self-employed, he or she could qualify in 2018 for a 20% reduction in tax rate. The 2017 individual with self-employed income again has $52,366 in tax. Because the 2018 individual with self-employment income receives the 20% lower tax rate, his or her taxes are reduced by $14,485 to $37,882.
- Lower-Income Single Taxpayer - A single person with moderate income of $30,000 in 2017 benefits from a personal exemption and standard deduction. The tax is $2,426. In 2018, the single person loses the personal exemption but the standard deduction almost doubles. The tax is reduced by $457 to $1,970.
These seven examples may vary considerably depending upon the specific circumstances of each taxpayer. However, they do provide reasonable estimates of the probable impact of the Tax Cuts and Jobs Act on Americans.
Published December 29, 2017
Tax Tips for Year-End Planning
IRS Year-End Reminders
Bipartisan Tax Reform Conference Committee
IRS Online Shopping Security Tips
IRS Tips on Charitable Giving