With President Trump’s ruling on December 22, 2017, the Tax Cuts and Jobs Act of 2017 came into existence, due to which various tax-related provisions for 2018 underwent changes. The Internal Revenue Service (IRS) announced these changes pertaining to taxes, and this includes the changes to the tax rate chart as well. So, an average American taxpayer has to brace themselves for major changes in their tax system; while calculating their taxes for 2018, they need to adhere to the 2018 tax rate chart that has undergone major changes as compared to the previous year’s tax rate chart. On the one hand, you would have to exercise caution while filing taxes for the year 2017–2018 since you have to refer to the previous year’s income tax charts. On the other hand, you will have to observe the 2018 income tax charts while filing taxes for the year 2018–2019.
It is common knowledge that your taxable income is the money you earn from work; however, educational funds, inheritances, gifts, and other compensations aren’t included in your taxable income. Therefore, the income tax will be levied on the money you have earned through the year, and you can gauge which tax bracket you fall into by referring to the 2018 income tax charts, where you will find the amount of tax to be paid against the taxable income.
Though the tax rate chart underwent major changes following the Tax Cuts and Jobs Act, the number of tax bracket remains the same, i.e., there are still seven tax brackets. However, the tax rates underwent changes, and they are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%, respectively.
For individual taxpayers: Individual taxpayers will have to adhere to the new tax rates while filing their taxes for the year. According to the 2018 tax rate chart, the taxable income for individual taxpayers are as follows:
- 10%: $0 to $9,525
- 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%: $500,001 or more
The standard deduction amount for individual taxpayers according to the income tax charts for 2018 is $12,000.
For married individuals filing joint returns and surviving spouses: The 2018 tax rate chart for married taxpayers filing jointly and surviving spouses are:
- 10%: $0 to $19,050
- 12%: $19,501 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
According to the 2018 tax rate chart, the standard deduction amount for married joint taxpayers is $24,000.
For the head of the household: According to the income tax rates for 2018, the head of the households have to pay an income tax of:
- 10%: $0 to $13,600
- 12%: $13,601 to $51,800
- 22%: $51,801 to $82,500
- 24%: $82,501 to $157,500
- 32%: $157,501 to $200,000
- 35%: $200,001 to $500,000
- 37%: over $500,000
The standard deduction amount for the head of the household filers is $18,000.
For married taxpayers filing separately: The 2018 tax rate chart lays down the tax rates for married taxpayers filing separately, and these are similar to the tax rates meant for individual taxpayers. However, for the married taxpayers who are filing separately, an income tax of 37% is levied if the taxable income is more than $300,000. Also, the standard deduction amount is $12,000.
Changes in the standard deduction amounts: The 2018 tax rate chart displays the standard deduction amounts that individual and married couples have to pay. The deduction rate for individual taxpayers, married taxpayers filing together or separately, and head of households is higher than it was in 2017. Moreover, as per the 2018 tax rate chart, the additional standard deduction amount for the elderly or the blind is $1,300, and this increases for unmarried taxpayers. Also, the 2018 income tax chart states that the standard deduction amount for an individual who is claimed as a dependent by another taxpayer cannot exceed the greater of $1,050 or the sum of $350 and the individual’s earned income.
Personal exemptions: The personal exemptions that were included in the 2017 income tax chart are no longer a part of the 2018 tax rate chart. There is no personal exemption amount for 2018. Moreover, the alternative minimum tax (AMT) exemption amounts are permanently adjusted for inflation. For individual taxpayers, the exemption amount is $70,300; married couples filing jointly and surviving spouses will have an exemption amount of $109,400; and for those filing separately, the exemption is $54,700.
Itemized deductions: The itemized deductions will undergo several principal changes; the state and local taxes can still be itemized, but these are capped at $10,000. This concession aims to assuage the uproar from the states where the citizens are burdened with heavy taxes. However, the interest on mortgages for primary and secondary residences is still deductible. Citizens can heave a sigh of relief since the limit has come down from loans up to $1 million to loans up to $750,000.
The advantage of the 2018 tax rate charts is that you can still maximize your tax-advantaged accounts and try to avail of the deductions that you are eligible for. In fact, the 2018 income tax rates have doubled the standard deduction, which can help you save taxes.
