Relief or Burden?

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December 2017 View more

The new tax plan Senate Republicans and President Trump proposed last month offers an assortment of pros and cons for individuals and families. Although the plan has not yet been finalized, some area residents will face higher taxes and some will pay lower overall taxes.

We asked tax case analyst Shavonne Taylor and tax attorney J. Anton Collins from Naperville’s Tax Law Offices what the net effects for adults filing under three typical scenarios. Data reflects the average DuPage County per capita income of $38,458 and average household income of $121,009 per year.

Changes in Tax Rates
Most single taxpayers with no children currently fall between the tax brackets of 15% to 25%. The proposed plan would fold most of those 15% to 25% group into a flat 12% group rate. Fortunately, that offers a 3% to 13% tax rate reduction to most of that group. But there is another smaller group within that new 12% rate, those currently paying 10% tax. The proposed tax rate change creates a 2% tax rate increase to the very least-earning, like students and the disabled and elderly.

Nearly almost all other individuals and families, no matter the filing status, who currently pay between 25% to 28%, will have a tax rate that reduces to (or remains at) 25%.

From this 25% tax rate change, affluent families—those with up to $260,000 of taxable income—will save a modest $3,000 per year. However, west suburban families whose taxable incomes fall between $77,000 to $150,000 per year will see no savings at all.

Changes in Deductions
Under the plan, several other deductions that many middle class families count on will now be eliminated. These include:

  • The state and local income tax deduction, which primarily helps homeowners, and those living in states with higher taxes.
  • The student loan interest deduction. This does not reduce or eliminate student loans, just the tax write-off for loan payments.
  • The mortgage interest deduction will be cut in half. Obviously, this is one of the great incentives for owning a home with a mortgage. That common benefit for homeowners will be slashed in half.

Single Without Children
New plan
Single Deduction: $12,000

Current plan
Personal Exemption: $4,050 + Standard Deduction $6,350 = $10,400

Result
Tax savings of $240 to $400 per year

To calculate tax savings, multiply a person’s tax rate by the $1,600 tax deduction increase (above). Most single taxpayers with no children fall between the tax brackets of 15% to 25% ($9,325 to $91,900), so the new deduction creates a per-person tax savings of $240 to $400 per year.

Married Without Children
New plan
Single Deduction: $24,000

Current plan
Personal Exemption: $8,100 + Standard Deduction $12,700 = $20,800

Result
Tax savings of $240 to $400 per year

Most married taxpayers, filing jointly but with no children, fall between the tax brackets of 15% to 25% (couples with taxable income between $18,650 to $153,100). For most in this category, this creates the exact same tax savings of $240 to $400, per spouse, per year.

Married With Two Children
New plan
Single Deduction: $24,000

Current plan
Personal Exemption: $16,200 ($4,050 x 4 people) + Standard Deduction $12,700 = $28,900

Result
Tax increase of $735 to $1,225 per household

The majority of families in DuPage County file as married taxpayers with children. The new tax plan creates a loss of deduction of $4,900 per year. Assuming this example family is also within the 15% to 25% tax bracket group, the yearly net effect is a tax increase of $735 to $1,225 per household.