by: Naomi Santana
Ever since President Donald Trump signed the legislation on tax reform last December, there have been many discussions about the effects it will have on taxpayers. But what is tax reform? Tax reform, according to businessdictionary.com, is “the way the government revises how tax laws are imposed.”
According to a Forbes article by Kelly Phillips Erb, President Trump signed the “Tax Jobs and Cuts Act of 2017” on Dec. 22, 2017. The article also mentions that there are still seven tax rates, which are: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent. There is also a zero rate. The federal estate tax exemption isn’t the only tax that will be modified; the tax rates for trusts and estates will change as well.
According to Phillips Erb, the tax reform makes the standard deduction amounts increase to “$12,000 for individuals, $18,000 for heads of households, and $24,000 for married couples” who file jointly, as well as surviving spouses. For 2018 there will not be any personal
exemptions, therefore individual taxpayers will be required to file a tax return if their “gross income for the taxable year is more than the standard deduction.”
Phillips Erb also mentions that tax credits and deductions were adjusted for 2018 to include a few of the most popular, such as child tax credit, Earned Income Tax Credit (EITC) and student loan interest deduction. The child tax credit will increase to $2,000 per qualifying child and will be refundable up to $1,400. The EITC will have a maximum amount of $6,444 for taxpayers married filing jointly who have three or more qualifying children. The maximum student loan interest deduction for interest paid on student loans remains the same at $2,500.
The tax reform law has a key change that lowers individual income tax rates, according to an investors.com article by Paul Katzeff. The top marginal rate will drop from 39.6 percent to 37 percent. The income levels that rates apply to will adjust in the same way the top marginal rate does.
Katzeff also states that a lot of taxpayers would need a higher income to bump up into a higher bracket. A single filer with $90,000 of taxable income would have been in the 25 percent bracket in 2017, while under the new rule this person would be in the 24 percent bracket. Tax brackets and rates will be indexed by the chained consumer price index, making them adjusted for inflation.
The tax reform will not be fully implemented until 2019, and it is not yet clear the full effect it will have on taxpayers.