As 2018 winds down, it’s time to look ahead to the new year and the changes coming to your 2019 federal tax rates. The IRS recently announced changes to more than 60 tax provisions, including tax rate schedules, cost-of-living adjustments, and more. Many of the changes announced for 2019 align with the Tax Cuts and Jobs Act passed in 2017. These new policy regulations take effect starting January 1, 2019 – meaning they’ll impact the tax return you prepare for April 2020. Nevertheless, plan ahead and avoid surprises when tracking your finances.
Here are the key changes the IRS is making to your taxes in 2019.
New 2019 Taxable Income Brackets and Tax Rates
Just as in 2018, there are seven tax rates the IRS has bracketed out for 2019. These tax rates are set at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The taxable income ranges have changed slightly from 2018. Here’s how these rates break out by filing status:
In comparison to 2018, the income brackets have shifted upward slightly. For example, in 2018, incomes of 0 – $19,050 were taxed at 10%; now, the IRS includes incomes up to $19,400.
Don’t forget: this is a progressive income tax, meaning when calculating your potential tax savings, don’t use a flat rate. Many people fall into the trap of estimating their tax using their top rate and then comparing that amount to the tax calculated using the proposed rates.
Here’s an example. Pretend you’re an individual payer in the 22% taxable income bracket for 2019. That doesn’t mean you pay 22% tax on all income. If you’re single, you pay 10% on the first $9,700. Then you pay 12% on the next $29,775, etc. You only pay 22% on the income over $78,950. That’s what makes it progressive income tax.
Remember: these changes apply to your tax return due in 2020, not in April 2019. If you need a qualified tax preparer to prepare your 2018 tax returns or would like more information on 2019 updates, get in touch with our experts to see how we can help.