With the new tax bill expected to be signed into law later this week, countless Americans are now left wondering how exactly the impending changes will impact them. And while not everyone will come out a winner in light of the new rules, there are a few features that may end up benefiting you.
1. The standard deduction is nearly doubling
Those who itemize on their taxes won't care about the generous increase the standard deduction is getting. But since the bulk of tax filers take the standard, it stands to reason that a large chunk of Americans will benefit from this major boost. Currently, the standard deduction is $6,350 for single tax filers and $12,700 for married couples filing jointly. Going forward, it's jumping to $12,000 for single filers and $24,000 for joint filers. And that'll no doubt result in some serious across-the-board tax savings.
IMAGE SOURCE: GETTY IMAGES.
2. Most individual tax rates are going down
Back in the day, there was talk that the new tax plan would seek to reduce the number of existing tax brackets from seven down to three or four. And while that never happened, what the new bill does do is lower most of the seven brackets still at play.
Here's what our tax brackets look like at present:
| $0 to $9,325 | $0-$18,650 | 10% |
| $9,326-$37,950 | $18,651-$75,900 | 15% |
| $37,951-$91,900 | $75,901-$153,100 | 25% |
| $91,901-$191,650 | $153,101-$233,350 | 28% |
| $191,651-$416,700 | $233,351-$416,700 | 33% |
| $416,701-$418,400 | $416,701-$470,700 | 35% |
| $418,401 and above | $470,701 and above | 39.6% |
DATA SOURCE: TAXFOUNDATION.ORG.
Now, here's what they look like under the new tax bill:
| $0 to $9,525 | $0-$19,050 | 10% |
| $9,526 to $38,700 | $19,051 to $77,400 | 12% |
| $38,701 to $82,500 | $77,401 to $165,000 | 22% |
| $82,501 to $157,500 | $165,001 to $315,000 | 24% |
| $157,501 to $200,000 | $315,001 to $400,000 | 32% |
| $200,001 to $500,000 | $400,001 to $600,000 | 35% |
| $500,001 and over | $600,001 and over | 37% |
DATA SOURCE: CNN.COM.
As you can see, a single tax filer earning $50,000 a year currently pays 25% on their highest dollars of income. Under the new system, that same person pays just 22%. Similarly, under the current setup, a couple filing jointly earning $200,000 pays 28% on their highest dollars of earnings. Under the new bill, that rate drops to 24%.
Now remember, because the above rates are marginal, they're only representative of how you'll be taxed on your highest dollars of earnings. In other words, if you're a low earner making $9,200 a year, you won't see a difference in taxes under the new bill. But many households do stand to gain from these changes.