What Has Changed with the GOP’s Tax Cuts and Jobs Act
After coming out of tax season, we are entering the time where refunds are in the mail.
Despite all the excitement surrounding the tax cuts, many of the refund checks we see might only be marginally different from last year. For some, this means a smaller refund. For others, this means that they owe more to the IRS than they have in years past.
This has left many with questions. One of President Donald Trump’s big campaign promises was to create fairer taxation for the middle class. But there is more to taxes than we see on our refunds now in the mail. The GOP’s Tax Cuts and Jobs Act has been at work longer – and harder — than the many in the public realize.
The perceived refund shrink is explainable. One reason is quite simple: lower taxes on your gross income each pay period. You might have noticed in February of last year that you had a larger paycheck each pay period than you expected in the past. This is because of tax cuts resulting in less money withheld from your pay.
Another bright side of new tax legislation is a larger Child Tax Credit for children under 17 years old. Parents can now claim a CTC of $2,000 per qualifying child; a far cry from the $1,000 under old tax laws. This part of the GOP bill is set to be phased out by the year 2025 (Tax Act).
Unfortunately, as with any tax-related legislation, things are complicated. How beneficial the Tax Cuts and Jobs Act is to you depends on your income bracket. If you land between $9,525-$200,000 each year, you were taxed an average of 2% less. The same applies for an income of over $500,000 per year. Those that lie in the $200,000-$500,000 range saw no change to their paycheck (Tax Foundation).
Also, if you didn’t adjust your W-4s for the amount you wanted withheld in accordance to new tax codes, you may have been impacted negatively (Time Magazine). This explains why some people might end up with an unchanged income compounded by a smaller refund.
The GOP’s tax bill eliminated personal exemptions as well, which amounted to nearly $4,050 per filer in 2017. Personal exemptions were replaced instead by a standard deduction double what it has been in previous years. For example, a person of single filing status went from $5,650 worth of standard deduction to $12,000.
All that said, there were also losers in the new structure. With the cap on state property taxes and elimination of the state and local tax (SALT) deductions, many who live in the New York, New Jersey, California and other highly taxed states will pay more.
Year to year, tax codes are a daunting puzzle. Did you feel cheated or triumphant after winding through the maze of 2019’s tax season?