Many High-Earning Singles Actually Suffer Under New Tax Law
They’re among 6.3% of households whose tax bills rose
The 2017 tax law gave Americans the largest rate cuts since the Reagan era. But for some people, the sweeping overhaul was actually a rate hike.
On average, the law reduced federal tax rates for individuals across all income groups, from fast-food workers to the wealthy 1%. Nearly two in three Americans saw their rates drop.
Then there’s the 6.3% of households across all income levels that saw an increase in their rates, according to the Urban-Brookings Tax Policy Center. (“Households” means individuals and people who are married and filing jointly or separately, but also situations in which two or more people live together but aren’t married.) The rest of taxpayers saw their pre-tax cut rates remain the same.
Those most likely to now owe more to Uncle Sam earn between $75,000 and $200,000, which makes them middle class. Some 10.1% of all taxpayers in that bucket got a rate hike, according to the center, and paid an average of $1,140 to $1,450 more in federal tax in 2018, the first year of filings that reflected the new law.
Definitions of “middle class” vary, of course, depending in part upon whether you live in a pricier city like San Francisco vs. more affordable Baltimore, or have children in college. Still, the upshot is that the most sweeping tax-code revamp in a generation took a bite out of the wallets of the core group — middle-class working Americans — it was supposed to benefit the most.
The clincher: Whether your rate went down or up depends largely upon whether you’re married. If you’re a hard-working, single professional in a well-paying job slogging it out to move your dream career up the ladder, you may have gotten hosed.
Before the new law went into effect in 2018, single filers who made at least $91,901 but under $191,650 were taxed at a rate of 28%, according to the Whole Ball of Tax summary of a study from Wolters Kluwer. Now, earners in the upper end of that range owe significantly more in tax.
Specifically, single filers who made at least $160,726 (and up to $204,100) in 2019 are now taxed at the new 32% rate, according to the report.
People with that level of annual income include pilots, doctors, nurses and dentists, according to the most current data from the Bureau of Labor Statistics. Because the data reflect averages, highly paid information technology managers, petroleum engineers, lawyers, marketing managers and architects can also bump into the higher tax bracket.
By contrast, most married filers in the middle-income ranges generally got a better deal under the new law.
Couples who made up to $480,050 before the overhaul generally saw their rates drop, though a few saw their rates stay the same. For example, before the changes, married filers who made at least $75,901 but less than $153,100 paid a 25% rate. This year, most of them will pay a 22% rate, with those at the very bottom of that income range paying 12%.
Before the new law, married filers who made between $153,101 and $233,350 paid a 28% rate. This year, they’ll owe typically 24%, with some at the bottom of that income range owing 22%.
Recall our single earner who will pay 32% on their income of over $160,726 last year. That’s right: If you’re single, you could be making the same amount of money as a married couple who is filing jointly, but now owe a rate that’s eight percentage points higher.
That’s a little-noticed fact in the new law, which kept in place seven income brackets but widened them out on both ends to include more income levels, all while cutting nominal rates. (The overhaul kept the individual rate at 10% but cut the top rate to 37%, from 39.6%.) The IRS adjusts income brackets each year to account for inflation.
The law also doubled the standard deduction, now $12,200 for single filers and $24,400 for married filers. So, many filers who used to itemize, or list, deductions for donations, a home office, work supplies or medical expenses no longer have an incentive to do so.
The sweetness of a higher standard deduction came with bitterness, as the law also eliminated the personal exemption —an amount that taxpayers could tally up based on the number of people in their households, and deduct from their taxable income. While that’s detrimental to large families with lots of children, it’s generally offset by the lower rates that most married filers now pay.
If you’re in the hosed category, you may soon have company. The law’s rates are set to expire after 2025 — but only if whoever’s in power in Congress and the White House allow them to.