The New Republican Tax Bill: What Millennials Need to Knowtax tips, tax news | December 28, 2017 | By Susannah McQuitty
The Republican tax bill has been all the buzz lately, and questions have been flying: How does the new bill affect me, and when does it start to affect my taxes?
Here are some points millennials need to know about the new tax bill, starting with the easiest question to answer: Will the new tax bill affect my 2017 tax return?
The tax bill doesn’t apply until next year
Okay, say it with me (everyone in the back, too!): “The new tax bill will not affect my 2017 taxes.” Nearly all the provisions of the Republican tax bill go into effect starting January 1, 2018.
The only exception for individuals is the medical expense deduction. This deduction, which is only claimed by those who itemize deductions and pay substantial medical bills, was slightly expanded for 2017 (and 2018).
Now that we’re on the same page, let’s look at some of the biggest changes that you'll be looking at on your 2018 tax return.
The standard deduction, itemized deductions and personal exemptions
Until the new tax bill, you would get a personal exemption for yourself, your spouse, and each dependent in your household. The personal exemption amount, $4,050 per person in 2017, would reduce your taxable income.
Now, the personal exemption has been removed in favor of raising the standard deduction, which also reduces your taxable income but only applies to each filer, not each person in the household.
The standard deduction will increase from $6,350 to $12,000 for single filers and from $12,700 to $24,000 for married filing joint filers. For millions more taxpayers, that means goodbye to the days of needing to collect receipts and tax statements to claim a list of itemized deductions. (This is the “tax simplification” you might be hearing about on the news.)
For example, a single filer who can claim $7,000 in itemized deductions in 2017 should itemize their deductions, since $7,000 is more than the standard deduction of $6,350. It’s extra work to find records to back up each itemized deduction, but it would be worth the extra money.
But in 2018, that same filer will take the standard deduction instead, since $12,000 is more than his itemized $7,000 (unless he scrounged up another $5,000 in itemized deductions, which is unlikely without a significant life change like home ownership or a large charitable donation).
Some common itemized deductions are state and local taxes, personal property taxes, real estate taxes, mortgage interest, charitable donations and unreimbursed employee expenses.
New tax brackets
The tax brackets have also gotten a facelift, for the most part. The tax rate on the 10% bracket and the 35% stayed the same, but the income amounts for both were raised. A raised income amount in a tax bracket means that you can earn more money before moving up to a higher tax rate.
In the other 5 brackets, the tax rate was lowered, and the income amounts were adjusted. You can compare and contrast tax brackets in the tables below:
What does all this mean? In general, it means more income will be taxed at lower rates, so virtually everyone will be subject to lower taxes in 2018.
The Child Tax Credit
Millennials with kids may also be affected by the new Child Tax Credit (CTC) rates: The credit amount per child is doubling from $1,000 to $2,000, and $1,400 of that amount will be refundable, meaning that if your tax liability is reduced to zero, you could still get up to $1,400 in refund money.
What other questions do you have about the new Republican tax reform bill? Let us know in the comments below!