A tax rate is a ratio at which an individual or a business is taxed. This ratio imposed by the federal government and some states are based on the corporation’s earning or an individual’s taxable income. Our country uses a progressive tax rate system, where the federal tax rates increase as taxable income increases.

Here is what you need to know about the new 2018 federal tax rates:

• The federal tax rates for the year 2018 has been overhauled. The marginal tax rate ranges from 10% to 37% based on the income of the individuals. Individuals earning up to $9525 per annum come under the 10% marginal tax rate, which means they will be paying roughly $950 as federal tax. On similar lines, married individuals with a combined earning of $19,050 will have to pay around $1905.
• The marginal tax rate of 24% will require you to pay more than $19,000 to $37000 if you earn between $82,500 to $157,000. Married individuals filing jointly are required to pay anywhere between $39600 to $75600 if they have a joint earning between $165,000 – $315,000.
• Individuals earning more than $500,000 are required to pay $185000 as per the 37% marginal tax rate. Married individuals filing jointly and who have a joint earning of $600,000 are required to pay over $200,000 as federal tax annually.
• One change to note here is, for instance, married individuals earning a taxable income of $90,000 would fall under the 25% tax bracket. Filing a joint income of $18000 would catapult them to 28% tax bracket. However, under the 2018 federal tax rates, the same income would fall under the 24% marginal tax bracket.
• The standard deduction has been roughly doubled in the 2018 federal tax rates, however, the personal exemption is eliminated. The personal exemption is the amount paid by the federal government to the resident taxpayer against their personal income while calculating the taxable income. As per the new 2018 federal tax rates, a single filer who was getting a total of roughly $10,500 would now be getting $12,000 as standard deduction.
• As for the tax breaks for parents, large families could be affected since the personal exemption was going away. This loss is made up by the expanded child tax credit. It is available for children under the age of 17. This change doubles the credit from $1000 to $2000. The amount of credit is refundable to $1400 as per 2018 federal tax rates.
• Short-term capital gains are taxed as ordinary income. The new federal tax rates of 2018 levy 0% tax rate to single taxpayers earning $38,600 per annum. The amount is $51,700 for married individuals filing jointly. People earning over $425,800 per annum are required to 20% long-term capital gains taxes.
• There have been no changes made in the child and dependent care credit. Currently, it is $1050 for one child aged under 13 and $2100 for two children. Parents can shelter $5000 of income in a dependent care flexible spending account. This makes child-care more affordable. However, you cannot use both at the same time to cover childcare costs.
• The earlier versions of education tax bills considered reducing and eliminating tax rates. However, lifetime learning credit and student loan interest deduction are still in place. A significant change in the bill is that it has expanded the available use of funds in the 529 college savings plan. This means you can use the money in your account for such expense and get tax exempted.
• As for mortgage interests, charitable contributions, and medical expenses. First, the mortgage interest deduction can be taken on mortgage debt to $750,000 which has been reduced to $1 million. The threshold for the medical expenses deduction reduced from 10% to 7.5%. If your adjusted gross income or AGI is $50,000, then you can deduct expenses over $3750 which was $5000 earlier.
• The 2018 federal tax rule has made a crucial change in the way pass-through business income is taxed. S corporations, partnerships, LLC’s, and sole proprietorships and this means if you are a small business owner that generates $100,000 in profit, then you will be able to deduct $20,000 before the ordinary taxes apply.
• Business owners such as lawyers, consultants, and doctors have phase-out income limits. Single filers have a limit of $157,000, while $315,000 are for joint filers.
• Although the overall tax rates have gone down, the number of tax brackets remains the same. It is important that you maximize your tax-advantages and make sure you get maximum deductions based on your eligibility.
• The deductions for casualty and losses, unreimbursed employee expenses, tax preparation expenses, moving expenses, employer-subsidized parking, and transportation reimbursement are excluded from 2018 federal tax rules.

The new tax bracket has gone into effect starting from January 1^st, 2018. So, make sure you apply for tax returns based on the current guidelines of the federal government.