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Impact of 2018 Tax Reform on Your Personal Income Taxes

Updated on September 27, 2018
MNSteveG profile image

I work in the medical imaging field, but I've also always had a passion for saving money and finance throughout my life.

Lets see how these tax changes could affect you

The first thing you may have found is that there are new tax brackets for 2018 and these are effective until 2025, unless they get renewed by congress at the time of expiration. I will show you what the 2017 tax brackets were and the new tax brackets. In my previous post I used 2 examples to figure out the person or family's actual tax rate. I will do this again with the new tax brackets.


Standard deduction has increased as well. The new single filer standard deduction is $12,000 ($6350 in 2017). The Joint filer standard deductions is $24,000 ($12,700 in 2017)

*Personal exemptions have also been eliminated.



Here are the old tax brackets:


Single Filers

Tax Rate Taxable Income Bracket Tax Owed
10% $0 - $9325 10% of income

15% $9326 - $37,950 $932.50 plus 15% of income over $9325

25% $37,950 - $91,900 $5226.25 plus 25% of income over $37,950

28% $91,900 - $191,650 $18,713.75 plus 28% of income over $91,900

33% $191,650 - $416,700 $46,643.75 plus 33% of income over $191,900

Married Filing Jointly / Qualifying Widow(er)

Tax Rate Taxable Income Bracket Tax Owed
10% $0 - $18650 10% of income

15% $18,651 - $75,900 $1865 plus 15% of income over $18,650

25% $75,900 - $153,100 $10,452.50 plus 25% of income over $75,900

28% $153,101 - $233,350 $29,752.50 plus 28% of income over $153,100

33% $233,350 - $416,700 $52,222.50 plus 33% of income over $233,350


Now lets take a look at the new 2018 tax brackets:

Single Filers

Tax Rate Taxable Income Bracket Tax Owed

10% $0-9525 10% of income

12% $9526-$38,700 $952.50 + 12% of income over $9525

22% $38,701-$82,500 $4453.50 + 22% of income over $38,700

24% $82,501-$157,500 $12,439.50 + 24% of income over $82,500

32% $157,501-$200,000 $30,439.50 + 32% of income over $157,500

35% $200,001-$500,000 $44,039.50 + 35% of income over $200,000

37% $500,001 + $149,039.50 + 37% of income over $500,000


Married Filing Jointly

Tax Rate Taxable Income Bracket Tax Owed

10% $0-$19,050 10% of income

12% $19,051-$77,400 $1905 + 12% of income over $19,050

22% $77,401-$165,000 $8907 + 22% of income over $77,400

24% $165,001-$315,000 $28,179 + 24% of income over $165,000

32% $315,001-$400,000 $64,179 + 32% of income over $315,000

35% $400,001-$600,000 $91,379 + 35% of income over $400,000

37% $600,001 + $161,379 + 37% of income over $600,000



Now that we've seen the change in our tax brackets, lets take a look at our examples again that I used in my previous article.

EXAMPLE #1 Married couple with 2 children filing jointly with income of $155,000 (income increased $5000 from 2017)


We’re going to just make some estimates for their numbers.

* Save 10% in 401k ($15,500)

* $5000 pretax dependent care account

* $2000 pretax flex spending account

* $6500 annually pretax for health insurance

* $600 annually pretax for dental insurance


Total pre-tax (tax exempt income) = $29,600

AGI (adjusted gross income) = $155,000 - $29,600 = $125,400


Deductions:

* Property Taxes of $4000

* Mortgage interest of $6750

* Charitable giving/donations of $1500

* Car tab taxes of $325

* MN tax paid (state income tax) some states don’t have income tax, instead use sales tax

In this example their state income tax should be $6506

Subtract estimated $200 marriage credit = $6306


Total Deductions = $18,881 * In this case the standard deduction is better *

Taxable Income = AGI - Standard Deduction.

$125,400 - $24,000 = $101,400

Federal Tax Owed: ($101,400-$77,400 = $24000) x .22 = $5280 + $8907 = $14,187, however now with changes to child tax credit income limits, now the family qualifies for a $2000 credit for each of their 2 children. This brings the federal tax owed to $10,187.

The Family's tax rate is $14,187/$125,400 = 11.31%

*If you factor in the child credit: $10,187/$125,400 = 8.12%

Their MN state income tax rate is $6306/$125,400 = 5.03%

*Some employers like my own allow you to put in a specific percentage you want taken out for each federal and state taxes. Others may have to be whole numbers. If they don't allow specific percentages, then you may need to play around with exemptions claimed on your W-4 and you can add additional dollar amounts to be taken out per pay period as well if you are not having enough taxes taken out of your checks.

I would set my Federal Taxes at 11.5% to be on the safe side and set my MN taxes at 5.25%. You may not get a huge refund check during tax season, but this way you are maximizing the amount of cash in your pocket from each check during the year.



EXAMPLE #2 Single person, renting home/apartment. (I won't get into rent paid refunds)

In this example the person makes $60,000


* Saves 10% in 401k ($6000)

* $500 Flex Spending Account

* $1100 Medical Insurance annually

* $150 Dental Insurance annually


Total Pre-Tax (tax exempt income) = $7750

AGI: $60,000- $7750 = $52,250

Standard Deduction of $12,000


Total Taxable Income = $52,250 - $12,000 = $40,250


Federal Tax: $40,250 - $38,700 = $1550 x 0.22 = $341 + $4453.5 = $4794.50


Their actual federal tax rate for the year would be $4794.5/$52,250 = 9.18%


MN State Tax: $2398


Their actual MN state tax rate for the year would be $2398/$52,250 = 4.59%

In this case I would set my Federal tax rate at 9.5% from my checks and 5% for State to be on the safe side.


➤On a side note, as previously mentioned in my article about income taxes we were able to file our taxes both federal and state free for the tax year 2017. This was using H&R Block More Zero. I was skeptical about it being free, but it truly was and we itemize on our taxes too! Here is a link to it if you are interested in checking it out. I'm just looking out for you all that read this. I want everyone to save money and not get ripped off paying high prices for tax services.

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