With the new tax bill expected to be signed into law later this week, countless Americans are now left wondering how exactly the impending changes will impact them. And while not everyone will come out a winner in light of the new rules, there are a few features that may end up benefiting you.
1. The standard deduction is nearly doubling
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Those who itemize on their taxes won't care about the generous increase the standard deduction is getting. But since the bulk of tax filers take the standard, it stands to reason that a large chunk of Americans will benefit from this major boost. Currently, the standard deduction is $6,350 for single tax filers and $12,700 for married couples filing jointly. Going forward, it's jumping to $12,000 for single filers and $24,000 for joint filers. And that'll no doubt result in some serious across-the-board tax savings.
2. Most individual tax rates are going down
Back in the day, there was talk that the new tax plan would seek to reduce the number of existing tax brackets from seven down to three or four. And while that never happened, what the new bill does do is lower most of the seven brackets still at play.
Here's what our tax brackets look like at present:
Now, here's what they look like under the new tax bill:
As you can see, a single tax filer earning $50,000 a year currently pays 25% on their highest dollars of income. Under the new system, that same person pays just 22%. Similarly, under the current setup, a couple filing jointly earning $200,000 pays 28% on their highest dollars of earnings. Under the new bill, that rate drops to 24%.
Now remember, because the above rates are marginal, they're only representative of how you'll be taxed on your highest dollars of earnings. In other words, if you're a low earner making $9,200 a year, you won't see a difference in taxes under the new bill. But many households do stand to gain from these changes.
3. The Child Tax Credit is expanding
The Child Tax Credit, in its current state, gives eligible families with dependents under 17 a cool $1,000 back on their taxes. The problem, however, is that the credit begins to phase out at relatively modest earnings levels:
- $75,000 for single filers
- $110,000 for married couples filing jointly
Under the new bill, two great things are happening to the Child Tax Credit. First, it's increasing to $2,000 per qualifying child under 17. Second, the above income thresholds are going up as follows:
- $200,000 for single filers
- $400,000 for married couples filing jointly
In other words, going forward, more families will actually get to take advantage of the credit. And as a reminder, unlike a deduction, a tax credit is a dollar-for-dollar reduction of your tax liability, which means it has the potential to be far more lucrative.
While the new tax plan may not be perfect, it contains certain features that are likely to benefit Americans across a wide range of incomes. And that's reason enough to breathe a sigh of relief.
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