LITTLE ROCK, Ark. (KTHV) — Now that the Tax Cuts and Jobs Act has passed both chambers of Congress, it will become a part of everyone lives.
That has meant many busy days of research and phone calls for tax professionals.
“People are saying, 'Are my taxes really going to go down?' And for most Americans, it certainly will,” Mary Harris, a franchisee with Jackson Hewitt, said. “Especially Americans with families.”
Harris believes parents will be the biggest winners from the changes to the tax code.
“Family of four,” she said as an example, “mom, dad, two children, with a $60,000 income — they're going to see an increase in refund of about $1,750. If there are four children, with a $60,000 income, it's going to be about $2,500, either decrease in tax or increase in refund, however you want to look at it.”
Harris said there are three significant changes for Arkansas families brought about by the Republican-created tax plan. First, income tax rates will fall, so the government will withhold a smaller part of their paychecks.
Second, the child tax credit will double, to $2,000 per child. Not only that, it will become refundable, meaning that even parents who do not pay federal tax will still get money back from the government for each of their children.
“So, if you had only one child, and you had $1,400 refundable, you would get an additional $1,400 back,” Harris explained. “If you had two children, you're going to get $2,800, and so on.”
Some filers will also be able to take advantage of a new, $500 credit, Harris mentioned, if non-dependent adults, such as retired grandparents, live with them.
Several deductions will go away, and Harris mentioned that could hurt some people who itemize lots of expenses for work or school. But the third important factor Harris cited about the tax overhaul is that the standard deduction will nearly double. For single filers, it will increase from $6,350 to $12,000, and for joint filers it will increase from $12,700 to $24,000. Harris said that will more than offset the loss of itemized deductions for most people.
“When you factor in the credits that people will be getting, and more importantly, the decrease in tax brackets, then most Americans are going to see an absolute reduction in tax,” she said.
The withholding rates will change in workers' paychecks will likely not change until February, Harris said, because it will take the IRS a few weeks to update its tables. The rest of the law will not impact people until they file their taxes in the spring of 2019. Harris suggested filers take advantage of free planning sessions with advisors at Jackson Hewitt during the summer of 2018 to make sure they use the best financial planning strategies.
“Most tax preparers are like that,” she said. “They'll be glad to help you do a little bit of tax planning so that you're in the position you want to be in come the end of the year next year.”
The final version of the tax plan also removed the individual mandate from the Affordable Care Act, beginning with taxes paid for the year 2018. Filers who do not have health insurance by Dec. 31, 2017 will still owe a penalty before the April 15, 2018 deadline.
“But when the penalty goes away, one fear of a lot of people is that premiums are going to go up. So, we'll just have to wait and see exactly how that's going to play out,” Harris said. “But the best thing is, you have time to plan. You have plenty of time to plan, to either reduce that penalty, or —most importantly — get health care insurance.”