Just when you were starting to get comfortable with your annual chore of tax filing, things changed. The 2018 tax reform bill hit the scene. Over the past year, you’ve heard about updates ranging from tax rates to deductions . . . and your head is spinning.
Not that you’ve ever loved tax season (who does?), but now you’re really dreading it.
Don’t worry—we’ve got your update! We want you to feel confident doing your taxes. And here’s the good news: Even though the tax reform bill brought some big changes, it made a lot of things simpler.
“We want you to feel confident doing your taxes.”
Stick with us, and we’ll break down the details so you understand what’s changed and how those changes impact you now that it’s 2019!
The Tax Reform Bill Impacts Your Taxes This Year
hat’s right. Even though the tax reform bill—formally known as the “Tax Cuts and Jobs Act”—was introduced a full year ago, it didn’t apply to the taxes you filed last year.
But when you file in April, you’ll feel the difference. You probably even noticed less money being withheld from your paychecks this year as a result of the changes.
Difference in Income Brackets and Marginal Tax Rates
First, one of the most talked about changes in the 2018 tax reform bill was the update to income tax brackets and marginal tax rates.
So what are marginal tax rates? Those are the percentages of your income that you pay in taxes. What this means for you: Your income is not taxed at one rate but at several different rates, depending on how much you make.
How do you know your tax rates? Enter tax brackets. Tax brackets are income ranges. It’s that simple.
Each tax bracket corresponds to a tax rate. For example, if your income is $120,000, your tax rate isn’t a flat 24%. Instead, part of your income is taxed at 10%, part at 12%, part at 22%, and part at 24%. (You can check out the chart below to see all the tax brackets with their corresponding tax rate.)
Here’s the thing about income brackets and tax rates: It’s fairly common for tax brackets to change to account for inflation each year. But the marginal tax rates only change when a new tax law is passed—which doesn’t happen often. That’s why people were especially interested in this part of the tax reform bill.
Is this good or bad news for you? This year, it’s good news! Lower marginal tax rates means you can pocket more money from your paycheck!
To help you see those changes, take a look at the 2017 and 2018 marginal tax rate tables.