Top 5 Changes With The New Tax Law For The Average Taxpayer

In December of 2017, U.S. President Donald Trump signed the Tax Cuts and Jobs Act of 2017 into law.

The largest tax reform bill signed into law since the 1980s, the changes went into effect in January 1st of 2018, so while they wouldn’t have affected your taxes for last year they will for this year.

Here are the top five changes with the new tax law for the average taxpayer:

1 - The Tax Rates Have Changed

The Tax Cuts and Jobs Act of 2017 reduced the income tax rate for most taxpayers. For 2017, the tax income rates were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. For 2018, the new brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

The various income levels for those tax rates have also changed, so you’ll want to check see what your new rate is.

2 - The Corporate Tax Rate Has been Reduced

Under the new law, the corporate tax rate has been reduced to 21% from a previous 35%. The previous 35% tax rate had been the highest corporate tax rate of any country in the world.

This is good news if run a business that is taxed as a corporation, since your tax bill will be significantly less before. The only exception to this is with a C corporation, which also has to pay a maximum 20% tax rate for qualified dividends paid to shareholders. This means that the maximum tax rate for a C corporation will be 36.8%.

3 - The Standard Deduction Has Doubled

One of the most significant changes of the tax law for the ordinary person is the fact that the standard deduction has now doubled to $12,000 for singles and $24,000 for couples.

The trade off is that several of the itemized deductions and the personal exemptions have now been eliminated. The idea was to simplify taxes for people by encouraging them to take the standard deduction instead.

4 - The Child Tax Credit Is Now Different

Under the previous tax code for 2017 and before, parents would receive a $1,000 tax credit for children under the age of 17, if they earned less than $75,000 individually or $110,000 jointly.

Under the new tax law, the child tax credit is increased to $2,000, and the income level is raised to $200,000 individually and $400,000 jointly.

5 - The Health Insurance Mandate Has Been Repealed

Finally, the health insurance mandate penalty set in place by the Patient Protection and Affordable Health Care Act was repealed under the tax law. This means that those who do not purchase health insurance will no longer need to pay the penalty, though this goes into effect in 2019 and not 2018.

Changes With The Tax Law

All in all, these are the top changes of the Tax Cuts and Jobs Act of 2017 that you can expect to affect you for the year 2018 and beyond.