Tax Facts

Tax Reform: Proposed New Tax Brackets


Currently, there are eight regular individual income tax brackets and they are: 0%, 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. Such a large set of tax brackets can easily move you into a higher tax rate sooner (as you make more money), especially when considering the bracket thresholds. Note that politicians and journalists often fail to mention the 0% tax bracket - but it does exist. With standard deductions, exemptions and tax credits, many citizens pay zero in tax and actually receive money when they file (called credits on the tax return).

The new Tax Cuts and Jobs Act (TCJA) proposes to cut those eight tax brackets down to only five: 0%, 12%, 25%, 35% and 39.6%. The zero percent bracket in the new proposal is significant because of the proposed enhanced standard deduction (essentially doubles) - the impact of which is that those who might have paid some tax will now pay zero tax with such a high standard deduction against their income - and of course receive credits (money in the form of a refund) as well.

It is important to pay attention to the ranges and thresholds for each of these tax brackets, as they dictate of course when portions of your income move from one bracket into the next. The proposal states that for those taxpayers with a filing status as married filing jointly the 25% tax bracket would be from $90k to $260k, (for 2017 or current tax policy it is $75,900 to $153,100). Easy to see that with fewer brackets and expanded thresholds in the TCJA, you are more likely to have a tax savings than not. For example, in the current policy (for 2017), if your taxable income is say $230k portions of your income (that greater than $153,100) is taxed at 28% and and some of that portion at 33%! In the TCJA proposal, all of that income (greater than $153,100) remains in the 25% tax rate.

The Tax Cuts and Jobs Act impacts to you are truly in the details. Call your tax advisor to see where your income, filing status, etc. fall in the new plan and how it is likely to save you on taxes; not increase your tax as some in the media are quick to proffer for political gain.

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