Items to know about the tax reform Part 3

August 10, 2018

In the first two installments of this series of posts we discussed the standard deduction and personal exemption changes implemented in the next tax plan. Where we left off in the second installment it seemed like the new plan is a bad deal for our example taxpayer. Today we will discuss the ways the taxpayer will come out ahead. We are going to discuss the changes in tax brackets and changes to the child tax credit.

Our example taxpayer sees a large benefit from the change in tax brackets and tax rates for 2018. As we discussed in the first two installments of this series of posts the taxable income increased in 2018 compared to 2017. The tax brackets are in the table below.

  Income Between   
Tax RateIndividualMarried Filing JointlyMarried Filing SeparatelyHead of HouseholdServing Spouse
10%0-$9,5250-$19,0500-$9,5250-$13,6000-$19,050
12%$9,526-$38,700$19,051-$77,400$9,526-$38,700$13,601-$51,800$19,051-$77,400
22%$38,701-$82,500$77,401-$165,000$38,701-$82,500$51,801-$82,500$77,401-$165,000
24%$82,501-$157,500$165,001-$315,000$82,501-$157,500$82,501-$157,500$165,001-$315,000
32%$157,501-$200,000$315,001-$400,000$157,501-$200,000$157,501-$200,000$315,001-$400,000
35%$200,001-$500,000$400,001-$600,000$200,001-$500,000$200,001-$500,000$400,001-$600,000
37%$500,000+$600,000+$500,000+$500,001+$600,000+

For our example taxpayer assuming the payer had two dependents the tax liability for 2017 was $9,733 and for 2018 it would be $8,739. As you can see our taxpayer saves approximately $1,000 less in 2018 compared to 2017.

The last item we will talk about today is the child tax credit. There were two changes made to the child tax credit. First, the credit doubled in the next tax plan. Increasing from $1,000 to $2,000 per child. Second, the amount of income you can have and still be eligible for the credit increased. The credit can be fully taken for those filing as married filing jointly and makeup to $400,000. So, for our example taxpayer when you factor in the child tax credit the amount of tax due in 2017 was $7,733 and in 2018 would be $4,739. This is an additional $2,000 savings, so in total the amount our example taxpayer saves in 2018 compared to 2017 is approximately $3,000.

We would love to hear your feedback related to this post. Was it helpful? Were the concepts explained in a way that is easily understood? Would you like more in-depth discussion? Please let us know!