Your Guide to Tax Brackets in 2018

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The IRS recently announced the federal tax brackets for 2018, and while the seven marginal tax rates are the same, the income thresholds have increased slightly to keep up with inflation. While there's a chance that these tax brackets may change if the GOP tax reform efforts are successful, here's a guide to the current 2018 tax brackets and what they could mean to you.

How tax brackets work

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First of all, it's important to discuss what is meant by a "tax bracket." Also known as marginal tax rates, tax brackets tell you the tax rate you pay on each dollar of your income.

In other words, if your taxable income falls within the 25% tax bracket for your filing status, that doesn't mean you'll pay the IRS 25% of your taxable income. Instead, you'll pay 10% on some of your income, 15% on another portion of your income, and 25% on income above a certain threshold. Put another way, your marginal tax rate is the rate you'll pay on your highest dollar of income, not an overall tax rate.

The 2018 tax brackets refer to the rates you'll pay on income earned in 2018, which you'll report on the tax return you file in 2019. If you're looking for the tax rates you'll pay on the tax return you'll file in 2018, you need the 2017 tax brackets.

The 2018 tax brackets, as they stand now

For 2018, there are seven IRS tax brackets. Here's how they look as of this writing, along with a quick method to calculate your own tax.

For single filers:

For heads of household:

For married couples filing jointly2018:

For married couples filing separately:

Standard deduction and personal exemptions

For 2018, the standard deduction is rising slightly. The standard deduction lowers the amount of your income that may be considered taxable, and almost any taxpayer who does not itemize their tax deductions can claim it.

In addition, the personal exemption is rising by $100 to $4,150 per person.

Potential changes if tax reform passes

Finally, no discussion of the 2018 tax brackets would be complete without mentioning the possibility that they could change. The House and Senate have each released their own versions of the Tax Cuts and Jobs Act, and while there are several key differences between them and we don't yet know what a unified bill could look like, here are some of the changes they could make to the tax brackets:

  • The House bill would lower income tax rates and consolidate the seven tax brackets into four, while the Senate's bill would lower rates but keep the seven-bracket structure. In both bills, the income ranges would be significantly different from those in the tables above.
  • Both bills propose roughly doubling the standard deduction and eliminating the personal exemption.
  • Both bills would eliminate many itemized and above-the-line deductions, which could significantly change your taxable income calculation.

The bottom line is that if tax reform is passed within the next couple of months, the actual 2018 tax brackets could look quite different from those outlined here.

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