President Trump has referred to the GOP tax plan as a “substantial tax cut” for the middle class. While many individuals may see a reduction in their taxes over the next few years, the extent of those reductions will vary significantly.
Additionally, some individuals may find themselves paying more.
How can you determine your potential tax situation?
Similar to the current tax code, several factors will influence your tax liability.
Your marital status, number of dependents, income sources, state of residence, typical tax deductions, and other variables will all contribute to the changes you might experience in your tax situation if the GOP plan is enacted.
The Tax Institute at H&R Block examined various situations for filers in different circumstances to provide a clearer picture of what to expect in 2018 for wage earners.
Over the next few years, many filers can likely expect some sort of tax reduction, although not everyone will benefit equally.
However, the landscape will change as the decade progresses because individual tax cuts are set to expire after 2025.
Related: Key components of the GOP’s final tax plan
This is just a glimpse of how individuals in various situations might fare next year.
It is important to note that these scenarios are not delving into the more intricate aspects of the Republican plan, such as the differential taxation of business income compared to wage income. More analysis is needed from experts regarding the implications for various filers.
Furthermore, these scenarios do not include the possible effects of other measures in the tax legislation, like the abolishment of the penalty for not purchasing health insurance, or any future reductions in spending aimed at balancing the fiscal impact of the tax changes.
Family of four in San Diego, Calif.
— Annual income: $150,000
— Married couple with two children under 17
— Homeowners
— Current itemized deductions total $22,000 ($7,000 state/local income tax; $5,000 property tax; $8,000 mortgage interest; $2,000 charitable contributions)
The family is projected to save approximately $3,559 in federal income taxes: They would choose not to itemize and rather opt for the nearly doubled $24,000 standard deduction for joint filers. Their highest tax rate would decrease from 25% to 22%. Additionally, they would become eligible for the expanded Child Tax Credit ($2,000 per child).
Related: Comparison of new tax brackets for 2018 under current law vs. GOP tax plan
The Tax Institute also assessed a different example involving a married couple in Houston with three kids under 17, also earning $150,000, and found a slightly higher savings of $3,771 for similar reasons.
Head of household in Kansas City, Mo.
— Annual income: $45,000
— Single parent with two children under 17
— Renter
— Currently takes a standard deduction of $9,550
The family would save an estimated $1,802 in federal income taxes: The standard deduction for heads of household would nearly double to $18,000. Their tax rate of 15% would be reduced to 12%. Additionally, the child tax credit increases to $2,000 per child.
Another scenario evaluated a single parent with three children under 17 in Los Angeles earning $75,000 who would save $2,560 for the same reasons.
Single individual in Queens, N.Y.
— Annual income: $120,000
— No children
— Homeowner (co-op)
— Itemized deductions amounting to $22,500 ($10,000 state/local tax; $5,000 property tax; $6,000 mortgage interest; $1,500 charitable contributions)
This individual would save an estimated $101 in federal income taxes: Although the top income tax rate would decrease from 28% to 24%, the GOP bill limits her state and local tax deduction (income + property) to $10,000, which is $5,000 less than her current deduction. She would still itemize under the plan, as her deductions would surpass the nearly doubled standard deduction of $12,000 for single filers.
Single individual in Westminster, Colo.
— Annual income: $70,000
— No children
— Homeowner
–$10,000 in unreimbursed business expenses
— Itemized deductions totaling $19,600 ($2,500 state and local income tax; $3,500 property taxes; $5,000 mortgage interest deduction; $8,600 in unreimbursed employee business expenses, limited to expenses exceeding 2% of AGI).
This individual would see an estimated tax increase of $1,484: Despite having a lower top tax rate of 22% compared to the current 25%, he would be unable to deduct any unreimbursed business expenses under the GOP legislation, leading him to take the $12,000 standard deduction rather than itemizing.
Single individual in New York City
— Annual income: $500,000
— No children
— Homeowner
— Itemized deductions totaling $135,000 ($46,000 state/local tax; $24,000 property tax; $55,000 mortgage interest; $10,000 charitable contributions) but capped at $128,001 due to limitations in the current tax code for high earners.
This individual would incur an estimated $6,470 increase in federal income taxes: This is due to two reasons. First, their top tax rate increases to 35% under the GOP bill from 28% currently. Secondly, the cap on state and local tax deductions is set at $10,000, a significant reduction from the $70,000 deduction currently utilized.
CNNMoney (New York) Initial publication December 18, 2017: 5:50 PM ET
