Trump Tax Brackets: Will Your Tax Rate Change?
President Donald Trump signed a law dramatically overhauling the U.S. tax code in 2017. The law will result in changes to what many Americans pay income taxes, including creating new tax brackets. The new tax law went into effect on Jan. 1, 2018, but it doesn’t affect the 2017 taxes that you will file in 2018. Instead it will be in effect for your 2018 taxes, meaning when you file your tax return in 2019 it will be based on the new Trump tax brackets.
Many workers may have already noticed changes to their paychecks. Look at your next paycheck to see if you have a different take-home pay as compared to what you had at the end of last year.
The Trump Tax Brackets
The chart below shows the new Trump tax brackets. If you know your yearly income, you can figure out your tax bracket and see what your rate will be for your 2018 taxes.
TRUMP TAX BRACKETS Single Filers Married Filing Jointly Tax Rate $0 – $9,525 $0 – $19,050 10% $9,526 – $38,700 $19,051 – $77,400 12% $38,701 – $82,500 $77,401 – $165,000 22% $82,501 – $157,500 $165,001 – $315,000 24% $157,501 – $200,000 $315,001 – $400,000 32% $200,001 – $500,000 $400,001 – $600,000 35% $500,001+ $600,001+ 37%
For reference, this chart below shows the tax brackets for 2017. If you find your income in both charts, you can see what the difference in your tax rate will be.
TAX YEAR 2017 FEDERAL INCOME TAX BRACKETS Single Filers Married Filing Jointly Tax Rate $0 – $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+ $470,701+ 39.6% How Have the Tax Brackets Changed?
As you can see, the biggest changes under the new Trump tax plan come for those in the middle of the chart. A married couple whose total income minus deductions is $250,000, for instance, would have had a highest tax rate of 33% in 2017. Next year, their highest tax rate will be just 24%, a fairly significant difference in take-home pay.
Those who earn less may also see a bit of a break. A single person making $39,000 in taxable income in 2017 saw a rate of 25%. In 2018, that drops to 22%.
You’ll also get a tax cut if you’re among the countries highest earners. The highest tax bracket used to carry a 39.6% rate and apply to single people earning more than $418,401 in taxable income and married couples filing jointly making more than $470,701. Now it kicks in at $500,001 for single people and $600,001 for married couples and has a rate of 37%.
How Tax Rates Work
Remember that the tax rates are marginal. The tax rate of your total income applies only to the income earned in that bracket. For instance, if your taxable income is $300,000 in 2018, only the income you earn past $200,001 will be taxed at the rate of 35% shown on the chart. The lower rates apply to income in the corresponding brackets.
This is important to consider when thinking about deductions and figuring out your taxable income. Just because your total income is pushing into a new tax bracket that doesn’t mean all of your money will be taxed at that rate – just anything above the threshold for the new bracket.
The Bottom Line
As noted above, the new Trump tax brackets don’t apply to the 2017 taxes that you file in 2018. Instead they apply to your 2018 taxes, which you will file in April 2019. It’s always helpful, though, to stay on top of what you’ll be paying in taxes in the coming years. If you’re wondering how your specific tax situation will be affected, use SmartAsset’s income tax calculator to see the difference between your 2017 taxes and what you’ll pay under the new tax plan.
Tax Season Tips
Figure out how to file your taxes early. If you’re a young adult paying taxes on your own for the first time this is especially important. It can’t hurt to brush up on the mechanics of getting through this yearly ritual either way, though.
See if you’ll be getting a refund or if you’re likely to have to send a check to the government using SmartAsset’s tax return calculator. This can be useful for your household budget. Plus, it helps you know what to expect when you go through with actually filing.
Consider using an electronic service to file your taxes. TurboTax is one of the most popular tax-filing services and it consistently gets high ratings on usability and customer support.
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