The federal income tax rates for almost all taxpayers changed in 2018 due to tax reform. Some taxpayers’ rates will change more than others. Here’s how the new tax rates will affect you.
How did tax reform change the federal income tax rates for 2018?
Most income tax bracket rates went down between 2-4 percent due to the Tax Cuts and Jobs Act. The lowest rate – 10 percent — didn’t change. Check out the new tax rates below for single filers and those married filing joint returns.
| 2018 Tax Rate | Taxable Income Level |
|---|---|
| 10% (unchanged from 2017) | Up to $9,525 |
| 12% (down from 15% in 2017) | $9,526-$38,700 |
| 22% (down from 25% in 2017) | $38,701-$82,500 |
| 24% (down from 28% in 2017) | $82,501-$157,500 |
| 32% (down from 33% in 2017) | $157,501-$200,000 |
| 35% (unchanged from 2017) | $200,001-$500,000 |
| 37% (down from 39.6% in 2017) | Over $500,000 |
| 2018 Tax Rate | Taxable Income Level |
|---|---|
| 10% (unchanged from 2017) | Up to $19,050 |
| 12% (down from 15% in 2017) | $19,051-$77,400 |
| 22% (down from 25% in 2017) | $77,401-$165,000 |
| 24% (down from 28% in 2017) | $165,001-$315,000 |
| 32% (down from 33% in 2017) | $315,001-$400,000 |
| 35% (unchanged from 2017) | $400,001-$600,000 |
| 37% (down from 39.6% in 2017) | Over $600,000 |
The new tax rates are not the only things that changed in these tables, however. The brackets themselves also changed – and not just by the usual amounts to adjust for inflation.
For example, the 24 percent tax bracket is 4 percent lower than the previous bracket rate of 28 percent. However, in 2017, that comparable bracket applied to Single filers’ income levels from $91,901 to $191,650. In 2018, the 24 percent rate applies to income for single filers between $165,001, all the way up to $315,000. In other words, not only did the tax rates go down, but the brackets were adjusted so that more income falls in the lower tax brackets, too.
Is all my income taxed at the rate that applies to my income level?
Not even close. A common misconception is that when your income reaches a bracket level, all your income is taxed at that rate. Fortunately, that is not true. Each portion of your taxable income is taxed at the applicable bracket rate. For example, if you were Single and made $10,000 in taxable income in 2018, you would pay a 10 percent rate on the first $9,525. You would pay the 12 percent rate only on $475 (the amount over $9,525).
To better understand how this works, check out the TaxAct Tax Bracket Calculator. Enter your filing status and taxable income. The calculator shows your tax bracket and your tax as a percent of income. For example, if you are married filing a joint return with a taxable income of $100,000, your tax bracket is 22 percent in 2018. Your tax is only 13.88 percent of your taxable income, however, because not all your income is taxed at your highest rate.
Keep in mind – the taxable income referred to in these tables is your income after all your adjustments and deductions.
Why is it useful to know my tax bracket rate, if it doesn’t apply to my entire taxable income?
Your top tax bracket rate is the amount you pay on each additional dollar you earn. You can use that information to determine how much you get to keep if you earn another dollar, or how much good a deduction does you. (Don’t forget to account for other taxes, such as Social Security, Medicare and state income taxes.)
If my new tax rate goes down, should my total tax bill be less, too?
Probably, yes. However, the new tax law changed more than just the tax rates. It also just about doubled the standard deduction, eliminated personal exemptions, added and expanded credits for dependents, changed the rules for deducting state and local taxes and mortgage interest, among other things. Your tax bill may go down, but a few (mostly higher income) people may find they now pay more.
How do I change my withholding to account for the new tax rates?
If you are an employee, you don’t need to change your income tax withholding just because of the new rates. The rates your employer uses to calculate your income tax withholding changed in February 2018. You may have noticed a change in your paycheck then.
Does that mean I don’t need to adjust my income tax withholding at all
It’s always a good idea to estimate your taxes during the year to make sure you’re not hit by a big tax bill when you file your return. It’s also important so that you don’t let the Internal Revenue Service keep money you don’t owe them if you’re overpaying. That extra money will come back in the form of a tax refund, but why let them hold onto it all year interest-free?
And that’s truer this year than ever, with so many changes to the tax code. You may also have other changes to your income, deductions, and additional factors that affect your tax liability. Always be sure to check that your withholding is best aligned with your current life situation.
The TaxAct Tax Calculator is a tool that can help you estimate your current year taxes. Be sure to select “2018” at the top of the page, so you estimate your taxes under the new tax code. And when it comes time to file your 2018 return, know that TaxAct is up-to-date with all of the changes to help you file with confidence.