2018 Tax Brackets

This was a great article from Business Insider on how the tax brackets will be different this year.

  • President Donald Trump signed the Republican tax bill into law at the end of December.
  • 2018 tax brackets have been changed under the new law, and are in effect starting this year. 
  • There are still seven income tax brackets, but the ranges have been adjusted.
  • The personal exemption has been eliminated, and the standard deduction has been increased.

President Donald Trump signed the Republican tax bill into law at the end of December.

The new legislation makes sweeping changes to the tax code for businesses and, on average, American taxpayers.

The tax bill went into effect on January 1, and applies to income earned this year. However, the new tax brackets will not affect taxes paid on tax day 2018 — which falls on April 17 this year — as Americans file tax returns for income earned in 2017, under the previous income tax brackets and law.

Here are the new tax rates for income earned during 2018.

Here’s another way of looking at it.

For Single Filers:

  • 10%: $0 to $9,525 of taxable income for an individual
  • 12%: $9,526 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%: over $500,001
  • Standard Deduction: $12,000
  • Personal Exemption:  eliminated

For Joint Filers:

  • 10%: $0 to $19,050 for married joint filers
  • 12%: $19,051 to $77,400
  • 22%: $77,401 to $165,000
  • 24%: $165,001 to $315,000
  • 32%: $315,001 to $400,000
  • 35%: $400,001 to $600,000
  • 37%: Over $600,000
  • Standard Deduction:  $24,000
  • Personal Exemption:  eliminated

There are still seven federal income tax brackets — but at slightly lower rates and adjusted income ranges.

About 70% of Americans claim the standard deduction when filing their taxes, and their paychecks will almost certainly increase — albeit slightly.

In 2017, the standard deduction for a single taxpayer was $6,350, plus one personal exemption of $4,050.

The new law combines those into one larger standard deduction for 2018: $12,000 for single filers and $24,000 for joint filers.

What about the AMT?

Taxpayers have had to deal with the alternative minimum tax in its most recent form since the early 1980s. The general idea back then was that with so many deductions available, lawmakers wanted to ensure that everyone paid at least some base minimum of tax regardless of how many tax breaks they could use to their advantage.

Over time, because the AMT’s exemption amounts initially weren’t indexed to inflation, the tax snared an increasing number of taxpayers. Although the tax was originally set high enough to capture only high-income households, rising wages and incomes threatened to make millions more taxpayers subject to the AMT. Some stopgap measures provided relief from the tax for years, and the tax changes five years ago related to the fiscal cliff made those measures permanent. Yet even with inflation indexing, the AMT still affected a much broader set of people than originally intended.

How lawmakers defanged the AMT

Congress could simply have eliminated the individual AMT, as they did for the corporate version of the tax. Yet they chose a more subtle approach that will have the same net effect for most taxpayers without officially taking the AMT off the books.

Specifically, what Republicans did was to propose an increase in the exemptions that apply to the AMT. By raising the exemption amounts, lawmakers effectively widened the 0% rate under the AMT, making it that much harder for the alternative minimum tax to exceed the ordinary income tax liability for given taxpayers.

With the AMT starting at a rate of 26%, the increases reduce potential AMT liability by more than $4,400 for singles and almost $6,500 for joint filers.

Yet the bigger change came in the way that lawmakers changed how the exemption amount phases out. Under old law, you started losing $1 of your AMT exemption for every $4 in extra income above a certain phase-out amount. Those phase-outs used to occur at $120,700 for single filers and $160,900 for couples. That phase-out effectively increased the 26% and 28% tax rates under the AMT to a marginal rate of 32.5% and 35% for those in income levels that reflected the phase-out. With ordinary tax rates of 25% and 28% applying to much of that income for regular tax purposes, the difference of roughly seven percentage points caused AMT to add up dramatically.

Now, the phase-outs will start at $500,000 for singles and $1 million for joint filers. By that point, tax rates of 35% and 37% are already in effect, so even effective AMT rates of 32.5% and 35% won’t actually result in any additional tax.

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