The Tax Cuts and Jobs Act was passed and signed into law on December 2017 has made markable changes to federal tax rules and may affect each individual in the U.S. People are wondering whether their tax rate has decreased which makes the amount of tax they have to pay each year reduced. In fact, it really depends on individual circumstances as you may find people who earn the same amount of money as you can have different tax rate. This tax rule is not permanent as it will be replaced by new rules by the end of 2025 unless it’s being renewed by that time. The key changes in the new Tax Cuts and Jobs Acts is shown as follow:
-The standard deduction
The standard deduction is increased for the Tax Cuts and Jobs Act. The amount of standard deduction depends on your status. There are five status according to the IRS which are single, married filing jointly, married filing separately, head of household, and qualifying widow. The rate is adjusted to change each year. If your status is single, then your standard deduction for 2020 is $12,400. At the meantime, if you define yourself as head of household status, the standard deduction will raise to $18,650.
-Tax brackets and rates
The number of tax bracket remains the same as before which is still 7, but the tax rates have changed slightly. The tax rates for each bracket are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. You may find yourself in certain bracket that correspond with your taxable income. For example, if you are single and your taxable income is $80,000, then the corresponding tax rate is 22%. In contrast, the higher income you make, the more tax you pay.