Update: The deadline for filing taxes will be pushed to July 15, 2020 from April 15, 2020 due to the Covid-19 outbreak. The IRS is also giving individuals who owe money on their 2019 tax returns until July 15, 2020 to make those payments. The IRS urges people who are owed a refund to file as soon as they can. Find out more here.
It’s income tax filing season again, and that means either you owe Uncle Sam money, or he owes you a refund.
That’s why it’s important to keep informed about changes to tax laws that could affect how you file. In late 2017, Congress passed the most sweeping tax cuts in a generation, and these changes are in effect for the 2018 and 2019 tax years.
The so-called Tax Cuts and Jobs Act revised nearly all parts of the tax code, according to financial experts, but it provided the most significant tax cuts for businesses and the wealthy.
Meanwhile, middle class and poorer taxpayers received more modest tax savings of about $1,600 on average in 2018, according to the Tax Policy Center.
- The act maintained seven tax brackets, but lowered tax rates for five of them and adjusted income thresholds for many of them.
- The standard deduction–or amount of income free from taxes–for individuals and married couples nearly doubled to $12,000 and $24,000 respectively. So if you are in the lowest tax bracket, you effectively owe nothing.
- The child tax credit doubled to $2,000 from 1,000.
Here’s a breakdown of the tax brackets:
2019 Federal Income Tax Rates, Unmarried Individuals
|up to $9,700||10%|
|Over $9,700 to $39,475||12%|
|Over $39,475 to $84,200||22%|
|Over $84,200 to $160,725||24%|
|Over $160, 725 to $204,100||32%|
|Over $204,100 to $510,300||35%|
Source: IRS, 2019
2019 Federal Income Tax Rates, Married Filing Jointly
|Up to $19,400||10%|
|Over $19,400 to $78,950||12%|
|Over $78,950 to $168,400||22%|
|Over $168,400 to $321,450||24%|
|Over $321,450 to $408,200||32%|
|Over $408,200 to $612,350||35%|
Source IRS, 2019
What does it mean to be in a tax bracket?
The federal income tax system is progressive, which means you pay increasingly more taxes on your income as you earn more money. The current tax bracket rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
But you don’t necessarily pay the full tax rate on all of your income. For example, let’s say you’re single and you make $45,000 annually. You’d pay 10% on the amount up to $9,700. You’d pay 12% on the amount from $9,701 up to $39,475; and then 22% on the amount from $39,476 to $45,000.
How taxes can affect how you fund your retirement account
For the 2019 tax year, you can fund either a 401(k), IRA, or Roth IRA until the tax filing deadline, which is April 15, 2020.
Traditional IRAs and 401(k) are tax-preferred accounts that can reduce taxes on your adjusted gross income, and potentially lower what you pay in taxes.
People under the age of 50 can put up to $5,500 into an IRA, and $18,500 into a 401(k). People who are 50 and older can put $6,500 into an IRA, and up to $24,500 into a 401(k). (For the 2019 tax year, these limits change. Find out more here.)
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We all have to pay taxes. Check out Stash Learn every day and learn more about how you can stay on top of changes to the rules so you stay ahead of the game.