The federal income tax rates for almost all taxpayers changed in 2018 due to tax reform. These changes will affect some of your clients’ rates more than others. Here’s how the new tax rates will affect your clients.
How did tax reform change the federal income tax rates for 2018?
Most income tax bracket rates went down between 2-4 percent due to the Tax Cuts and Jobs Act. The lowest rate – 10 percent — didn’t change. Check out the new tax rates below for single filers and those married filing joint returns.
Single Filers Tax Rates
| 2018 Tax Rate | Taxable Income Level |
|---|---|
| 10% (unchanged from 2017) | Up to $9,525 |
| 12% (down from 15% in 2017) | $9,526-$38,700 |
| 22% (down from 25% in 2017) | $38,701-$82,500 |
| 24% (down from 28% in 2017) | $82,501-$157,500 |
| 32% (down from 33% in 2017) | $157,501-$200,000 |
| 35% (unchanged from 2017) | $200,001-$500,000 |
| 37% (down from 39.6% in 2017) | Over $500,000 |
Married Filing Joint Tax Rates
| 2018 Tax Rate | Taxable Income Level |
|---|---|
| 10% (unchanged from 2017) | Up to $19,050 |
| 12% (down from 15% in 2017) | $19,051-$77,400 |
| 22% (down from 25% in 2017) | $77,401-$165,000 |
| 24% (down from 28% in 2017) | $165,001-$315,000 |
| 32% (down from 33% in 2017) | $315,001-$400,000 |
| 35% (unchanged from 2017) | $400,001-$600,000 |
| 37% (down from 39.6% in 2017) | Over $600,000 |
The new tax rates are not the only things that changed in these tables, however. The brackets themselves also changed – and not just by the usual amounts to adjust for inflation. If we compare income ranges for some 2017 and 2018 tax brackets for a single filer, we find that there is not simply an increase across the board:
- The 12% bracket’s lower and upper income thresholds both increased, compared to the 2017 income range for this bracket.
- The 22% bracket’s lower threshold increased, but the upper threshold decreased.
- The 24% bracket’s lower and upper thresholds both decreased.
- The 35% bracket’s lower level decreased, but the upper level increased.
If a client’s tax rate goes down, should their total tax bill be less, too?
Probably, yes. However, the new tax law changed more than just the tax rates. It also just about doubled the standard deduction, eliminated personal exemptions, added and expanded credits for dependents, and changed the rules for deducting state and local taxes and mortgage interest, among other things. Your client’s tax bill may go down, but a few (mostly higher income) people may find they now pay more.
What can I do to prepare my clients for the upcoming filing season?
The changes to the tax code have paved a path of uncertainty to the 2018 filing season for many taxpayers. As a trusted tax professional, you are in a unique position to help your clients navigate through these changes with confidence. You can assist your clients with determining appropriate withholding, tax liability, how much they will get to keep if they earn another dollar, or how much good a deduction could actually do for them. Your knowledge and expertise makes you an invaluable resource for your clients!
To further help your clients plan for their financial future, the TaxAct Professional software also includes the Tax Calculator tool, which uses current-year return data to project earnings, expenses, and taxes for the next two years. You may access this tool by opening your client’s return in the TaxAct Professional software, clicking the “Tools” button in the toolbar, and clicking the “Tax Calculator” link.
What can I do to help my clients understand the Tax Cuts and Jobs Act?
Explaining the ins and outs of the Tax Cuts and Jobs Act to your clients may seem like a daunting task. That’s why TaxAct Professional has created this Tax Cuts and Jobs Act Infographic to provide to your clients! This infographic breaks down the TCJA into key elements to make the changes easier for your clients to understand.