How Will Trump’s Tax Plan Impact You?
President Trump has made a lot of promises that aim to fulfill his campaign slogan to “Make America Great Again.” One of the ways he wishes to do so is by simplifying the tax code for businesses and individuals. While his desire is to have everybody pay less in taxes, how will Trump’s plan affect lower income individuals?
There Would Only Be Three Tax Brackets
Tax laws are constantly changing and currently, there are seven different federal tax brackets ranging from 10% of your income up to 39.6% of your adjusted gross income.
Trump’s tax plan calls for reducing those seven brackets down to three brackets of 12%, 25%, and 33%.
Since the majority of the people fall into the three bottom tax brackets, 10%, 15%, 25%, under the current tax code, the charts below will compare these tax brackets.
Current Income Tax Bracket
|10%||Up to $9,275||Up to $18,550|
|15%||$9,276 to $37,650||$18,551 to $75,330|
|25%||$37,651 to $91,150||$75,331 to $151,900|
Assuming you are single and earned $35,000 in 2016, your federal income tax would be 10% on the first $9,275 you earned and 15% on the remaining $25,725 for a total tax of $4,786.
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Here’s what your tax rate would look like under the Trump tax plan:
Trump’s Proposed Tax Brackets
|Tax Rate||Single & Married Filing Status|
|12%||Up to $75,000|
|25%||$75,001 to $225,000|
|33%||More Than $225,000|
When you make $35,000 with the Trump tax plan, you will pay approximately $4,200. That’s a savings of $586 in addition to any other deductions and credits you might receive.
It Will Be Harder To Itemize
While you can expect to have less withheld from each paycheck, it will also be harder to itemize at tax time which can save families money if they make enough charitable contributions and have home mortgage interest. There are many more deductions, but, these are the two most commonly claimed itemized deductions.
Right now, you need to have $6,300 in itemized deductions if you are single and $12,600 in qualified deductions as a married filer. Under the Trump plan, those numbers change to $15,000 & $30,000 respectively.
That is a steep increase, but, if you are nowhere near the current amounts to qualify for itemization, this probably isn’t a big deal as you will do the standard deduction either way.
How Can You Benefit From These Tax Changes
Low-income families stand to pay a little more in taxes each year as the 10% bracket is being eliminated, but, for families where both adults earn more than $10,000 per year will have a little extra money in their wallet.
Even though it might only be a few hundred dollars, that’s more money than you might get back now. The extra income can be used to pay off student loans, go towards starting a family, a down deposit on the house, or taking a vacation. In essence, most folks, except those still working part-time during college or just starting their careers stand to benefit from the Trump’s tax plan when solely focusing on the tax brackets themselves.
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