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A Look at the 2017 Proposed Reform Tax Brackets

Nov 3, 2017

So the tax reform cat is out of the bag. Comparing the current tax law with the proposed one is like comparing apples to pears...both still firm fruits, with similar skin and seeds, but not exactly the same.

One of the surprising things I saw they're proposing to get rid of are the student loan interest and the medical deductions (maybe too many people would qualify with the rising costs of The Marketplace premiums!).

Around here, the fact that they lowered the mortgage interest deduction from $1M of mortgage debt down to $500K and capped the property and sales tax deduction to $10K won't affect a large swath of the population. In fact, according to Zillow, only Hawaii and California's median home values exceed $500K--at $605K and $505K, respectively. When you hear "this is going to affect the blue states more than the red states," they're talking about the metropolitan areas in those states--and in fact, any state. We have plenty of houses here in Louisiana that cost more than $500K, but the majority of them do not.

As more details emerge, we hope to bring you a more in depth analysis, but for now, we'll compare the end result: the tax brackets. After all, once the deductions, exemptions and other reductions have been subtracted, what you really care about is how much tax you're going to pay for the year, and we use the tax brackets to calculate that amount.

So, without further ado, here are the brackets (old and new):


Current ...........................|..Proposed
10% 0-9,325....................|..N/A
15% 9,325-37,960...........|..12% 0-45,000
25% 37,950-91,900.........|..25% 45,000-200,000
28% 91,900-191,650.......|..N/A
33% 191,650-416,700.....|..N/A
35% 416,700-418,400.....|..35% 200,000-500,000
39.6% 418,400-infinity.....|..39.6% 500,000-infinity

We can see that singles having up to $200K in taxable income are going to like this plan, since the old plan would've seen some of that $200K getting taxed at 33%. However, once they make over $200K, they will long for the days of the 28% and 33% brackets because their next $300K gets taxed at the 35% instead of having the bulk ($216K) of it taxed at those lower brackets.

The start of the 39.6% bracket doesn't kick in until $500K of income, so singles didn't do so bad under this new plan.


Current ...........................|..Proposed
10% 0-18,650.................|..N/A
15% 18,650-75,900........|..12% 0-90,000
25% 75,900-153,100......|..25% 90,000-260,000
28% 153,100-233,350....|..N/A
33% 233,350-416,700....|..N/A
35% 416,700-470,700....|..35% 260,000-1,000,000
39.6% 470,700-infinity....|..39.6% 1,000,000-infinity

Like the singles, the marrieds having up to $260K in taxable income are going to like this plan.

Like their single counterparts, once they make over $260K, marrieds will long for the days of the 28% and 33% brackets because their next $263K gets taxed at the 35% instead of at those lower brackets.

Here, the "marriage penalty" rears its ugly head in a super obvious way. An unmarried couple with each making $200K in taxable income ($400K total household income) would pay tax at 25%. Our married friends making the same exact amount would be paying an extra $14K in taxes because their income between $260K-$400K gets taxed at the higher, 35% bracket. "Ouch...the wedding is off!!"

However, unlike their single counterparts, married folks will enjoy $740K worth of their income taxed at the 35% bracket, and once they make over that, the last bracket, 39.6% will begin.

The start of the 39.6% bracket is super fair to the marrieds, since it doesn't kick in until their taxable income exceeds $1M. The old brackets started collecting 39.6% at taxable income exceeding $470K. For a married couple having $1M of taxable income, this is just over $24K in savings compared to the old plan (can't wait to make a million dollars per year so I can start saving that kind of dough!!).

At these high tax brackets >$500K, the "cohabitation penalty" would kick in if one of the two unmarrieds makes more than the other. At its extreme, unmarried couple households with just one earner making $1M will pay $23K more in taxes than their married counterparts also making $1M because their $500K-$1M worth of income will be taxed at 39.6% instead of 35%. "Woo-hoo!...the wedding is back on!!!"

Category: Bookkeeping