A simple explanation on how the GOP tax bill might affect you
Congress approved a final tax Wednesday the Tax Cuts and Jobs Act that will significantly cut corporate taxes, while temporarily giving most Americans lower taxes until 2026.
Wealthy Americans will see some of the deepest cuts, thanks to a reduction in their top tax rate and an increase in the income required to pay that amount.
Income tax liability calculatorThis calculator is designed for people who take the standard deduction on their taxes based on income from a job or W2. We factored in the earned income tax credit and child tax credit, but no other credits or deductions.
Under current law and the new tax bill, you can deduct up to $2,500 of student loan interest off your taxable income. If you take this deduction, subtract that amount before entering your total income.
How did you file your return last year?Joint (married couple)
Head of household
This calculator factors two of the most common tax credits taken by low income families: the Earned Income Tax Credit and the Child Tax Credit. We added the new family tax credit included in the tax bill. Any other credits you’ve taken on your taxes will affect the accuracy of these numbers.
If you receive a credit for eligible tuition expenses, that number would be subtracted from your total tax bill under both current law and under the new tax plan.
The individual tax portions of the bill, including higher standard deductions and lower tax rates, are set to expire in 2025. After that, your taxes should look something like they do now.
For the sake of simplicity, we’ve assumed all income you entered at the top is earned income, rather than income from sources like social security. If your income is from a source other than a job, it might affect your eligibility for these credits.
Individual tax ratesThe bill keeps seven tax brackets, as under current law, with slight cuts to the tax rates for most. These cuts will expire in 2026, so savings for most families will be temporary.
People in the bottom bracket still will pay 10 percent of their taxable income, though the actual amount paid will fall for most due to an increase in the standard deduction. Other brackets will see rates from 1 to 4 percent lower.
The top tax rate for the wealthiest Americans will fall from 39.6 percent to 37 percent, and the income threshold will increase to $500,000 for a single person or $600,
000 for a married couple. That’s a bigger cut than was in either the initial Senate or House bill.
Standard deduction and personal exemptionsThe bill nearly doubles the standard deduction until 2025, at which point it will revert to present day levels, adjusted for inflation.
The new deduction will be $12,000 for singles, $18,000 for heads of household and $24,000 for married couples.
The bill also suspends personal exemptions, which allow people to take $4,000 per person in the household off their taxable income, with some exceptions. Those exemptions will end in 2018 and return in 2025, when the increased standard deductions expire.
Corporate taxesThe bill will immediately cut the current tax rate on corporations from 35 percent to 21 percent.
The bill allows a significant deduction for “pass through” income, where the income made by the business is passed through to the owner’s individual tax return. Currently, pass through income is taxed at the same rate as other income.
The bill will give business owners a 20 percent deduction on their pass through business income, allowing them to keep more earnings tax free. Service businesses, including law firms, medical offices, investment offices and accountants, only will be able to take that deduction if they make less than $315,000 for married couples. This change expires in 2025.
Self employment taxes for freelancers, Uber drivers,
independent salespeople and other contractors aren’t changing. The biggest changes for people who do business as sole proprietors will be the changes to individual tax rates.