Who will be affected by the new tax legislation that went into effect Jan. 1? That is a question many are asking.
While “everyone” is likely to see some changes, here’s an idea of how many people fell into each income group. In 2015:1
- About 1.4 million Americans accounted for the top 1% of income earners. These Americans earned at least $480,930 of adjusted gross income that year and paid about 40% of all federal income taxes.
- The top 50% of taxpayers earned at least $39,275.
- 71 million taxpayers earned less than $39,275 and paid 2.8% of all the income taxes.
Our tax liability is about as personal as our investment choices, career path, favorite foods and what we wear to work in the yard. In short, no matter what’s in the new tax law, it’s likely to affect your tax return differently from your neighbor’s. If you anticipate significant changes, we suggest you seek the counsel of an experienced tax advisor. We can help you find one if you’d like a recommendation.
By the same token, it’s a good idea to work with your financial professional when strategizing a tax-efficient plan, because most financial decisions are intertwined. It’s good for the left hand to know what the right hand is doing.
According to a survey from Willis Towers Watson, two-thirds of employers surveyed say they’ve either made or are considering making enhancements to their employee benefits as a result of the Tax Cuts and Jobs Act. Among them:2
- 26% are increasing contributions to their sponsored retirement plans.
- 34% are considering expanding personal financial planning programs for workers.
- 19% are considering increasing or accelerating contributions to defined benefit plans.
Social Security recipients also may see a change. The new tax law will make cost-of-living adjustments using the Chained Consumer Price Index (CPI) rather than the traditional CPI.3 The difference is that growth of the Chained CPI is generally a few tenths of a percentage point lower the traditional CPI. This could mean slower growth in Social Security benefits.4
Homeowners who take the state and local tax deduction (SALT) as a part of their itemized deductions are going to see a cap ($10,000) on the amount of interest they can deduct from their 2018 return. This mostly is expected to affect residents of states with high income taxes.5
The new law also caps the mortgage interest deduction on home purchases made after Dec. 14, 2017, at $750,000 in mortgage debt, a decrease from the previous cap of $1 million. Further, it eliminated the deduction for interest paid on a home equity loan, for both current accounts and new ones opened in the future.6
Content prepared by Kara Stefan Communications.
1 Kevin McCormally. Kiplinger. Nov. 1, 2017. “Where You Rank as a Taxpayer.” https://www.kiplinger.com/article/taxes/T054-C000-S001-how-you-rank-as-a-taxpayer.html. Accessed Feb. 22, 2018.
2 Nasdaq. Jan. 25, 2018. “Tax law fueling changes to employer benefits and compensation programs, Willis Towers Watson survey finds.” https://globenewswire.com/news-release/2018/01/25/1305044/0/en/Tax-law-fueling-changes-to-employer-benefits-and-compensation-programs-Willis-Towers-Watson-survey-finds.html. Accessed March 6, 2018.
3 Robert Powell. The Street. Jan. 26, 2018. “How the New Tax Law Affect Tax Brackets and Roth Conversions.” https://www.thestreet.com/story/14463562/1/how-the-new-tax-law-affect-tax-brackets-and-roth-conversions.html. Accessed Feb. 22, 2018.
4 Sho Chandra. Bloomberg. Dec. 19, 2017. “What You Need to Know About ‘Chained CPI’” https://www.bloomberg.com/news/articles/2017-11-20/why-chained-cpi-has-links-to-u-s-tax-debate-quicktake-q-a. Accessed Feb. 22, 2018.
5 Amelia Josephson. SmartAsset. Jan. 18, 2018. “Changes to State and Local Tax Deduction — Explained.”https://smartasset.com/taxes/trumps-plan-to-eliminate-the-state-and-local-tax-deduction-explained. Accessed March 6, 2018.
6 Samantha Sharf. Jan. 9, 2018. “How the New Tax Law Will Impact Your Housing Costs.” https://www.forbes.com/sites/samanthasharf/2018/01/09/what-in-the-final-tax-bill-could-impact-your-housing-costs/#243c76c32c08. Accessed Feb. 22, 2018.
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