After the last tax season, I concluded that the Tax Cuts and Jobs Act of 2017(TCJA) caused average income earners like myself to pay more in taxes than we did in 2017. In my opinion, the culprits are the elimination of the personal exemption for people whose Adjusted Gross Income (net income or income after allowable deductions) is between 261,000 and 430,000 depending on their filing status, the elimination of most 2106 deductions (moving expenses, job search expenses, mileage for your job, union dues, uniforms, other materials, equipment and supplies that you buy to do your job, home office for those who work from home, tax preparation fees, etc.) for civilian workers and the limitation of state tax deductions (state income taxes, property taxes, municipal taxes, etc. combined) to $10,000.
Ouch, New Yorkers ! The most recent reporting of the average percentage decrease in tax refunds for 2017 by the IRS is 16%. However, we all know their average includes the top income earners who got the biggest tax breaks, so without their tax breaks offsetting the average my personal return reflected a bigger hit. Because of TCJA, I think single parents with incomes between $50,000 and $200,000 paid more taxes last year and will pay even more this year. So, my question is did your tax return reflect a bigger hit and what was your general income bracket and filing status? Please repost your answer in the comment section. Take a look at the following calculations that I did to see the average impact of losing these middle income friendly tax breaks: The average tax decrease for 2018 was 1.942%. However, individuals and families with adjusted gross incomes less than $261,000 or $313,000 for married couples filing jointly lost a personal tax exemption of $4050 per person in their households. For a family of four, this removes an additional $16,100 from taxable income. Do the math, the average tax decrease of 1.942% would save a family of four with an AGI of 261,000 about $5063 in taxable income ($261,000 x .01942 =$5063). To be fair, the Child Tax Credit (CTC) was increased from $1000 to $2000 for dependent children under 17 by December 31st of the tax year. By the way, the $2000 is only refundable up to $1400 for a maximum of 3 kids who meet the age requirement. Let’s say that our family of four (Head of Household (HOH) single mom or dad with three kids) had 2 children under 17. So, we can effectively remove another *$2000 from their taxable income bringing our total to $18,100. Now let’s add $ the refundable part of our CTC and the $500 per dependent the 2018 average tax decrease $1400 x 2 =$2800 + $500 Dependent Credit (DC) for the kid that is over 16 by the end of the year = $5063 + $3300 or $8063. Take a look at my side by side with deduction and credits for both years below: 2017 Before Tax Reform 2018 After Tax Reform Head of Household 3 kids 261K Head of Household 3 kids 261K Personal Exemption $16,100 2% tax decrease $5063 CTC $2000 CTC + DC $3300 Itemized Deduction $25350 Standard Deduction $18,000 Total Deductions $43450 Total Deductions $26263 I know it seems that I hedged the figures by not itemizing deductions for 2018, but due to the removal of certain deductions for the average worker and the limitation placed on state tax deductions, it is rarely feasible for the average income earner to have deduction that exceeds what the current tax reform law has set for a standard deduction. However, even if I plug in the 2017 standard deduction of $9350 for HOH the total deduction in taxable income is $27,450 which exceeds the 2018 figure by $1187. 2019 could be worse. This year instead of my refund being cut in half, I owe a bit of money, so I am going to pay it before April 15th to avoid interest and penalties. You should not hedge your bets this tax year. Go to the following IRS link to check if you paid enough taxes in 2019 so that you can avoid interest and penalties: https://www.irs.gov/individuals/tax-withholding-estimator If you have questions about what information to enter into the estimator and where to enter it, complete and submit the "For More Info." form on the right and select Tax Estimator/Assistant Help. *Credits lower the taxes you owe rather than your taxable income. For example, if you owe $1000 in taxes and you have a credit of $2000, your refund should be $1000. However, for the purposes simplicity I am treating credits like deductions. ** It is important to note that calculating refundable credits is more complicated than shown above; however, the amounts are average for income brackets of approximately $30,000 plus. ***Visit the following link to view 2018 and 2019 Tax rates and Brackets https://www.usa.gov/tax-reform Visit the following link to view 2017 Tax rates and Brackets https://www.bankrate.com/taxes/2017-tax-brackets/ ***I am not affiliated with either entity; however, I did find their information to be credible.
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