How the new tax law directly benefits families
By Eric Olsen
Since December 22, 2017 there has been a flurry of news articles all talking about the same thing. Taxes. Well, rather the new tax law that just signed, the Tax Cuts and Jobs Act (TCJA). One of the biggest winners of this new law is American families, especially considering that most of the middle class is having this tax bill lowered by it. This article details several key points that have been adjusted and how the changes benefit you.
Child Tax Credit
Thinking about having kids? Well thanks to the TCJA it is now more affordable to do so.
Under the previous tax law, the child tax credit (CTC) was a $1,000 per child and phased out at different incomes ($55,000 for married couples filing separately; $75,000 for single, head of household, and qualifying widow or widower filers; and $110,000 for married couples filing jointly). However, under the TCJA, the CTC increases to $2,000, which is a hefty increase. Couple that with the tax credit phaseout for the CTC increasing to $200,000 (or $400,000 for joint filers) it is a very good thing for families, especially since the CTC is refundable up to $1,400).
Paying for School
529 savings accounts are accounts that can be used to put taxed money into plans to help save for college. The money in the accounts can then be invested and it will grow tax-free. Additionally, 33 states offer state tax deductions or credits as well. When it comes time to pay for college, the money can then be withdrawn and used tax-free for education related expenses.
The new TCJA maintains the basic status of the accounts and (thanks to Senator Ted Cruz) has added to them. The money placed into these accounts can now be used to pay for expenses related to private or religious K-12 education. Meaning for those of you who are looking to put your kids in private school, now is a good time to start saving up do to so.
Maybe your family has suffered a divorce and you are now receiving an alimony payment. Well for the person making the payment, they can no longer deduct it as an expense. However, the person receiving the payments will no longer need to pay tax on the income received. Granted, this doesn’t kick in until January of 2019, however if they would prefer, ex-spouses can modify their existing agreements to have this new tax law come into effect.
Currently if a child collects unearned income above $2,100, the money is taxed at the parent’s tax rates rather than the child’s, if the parent’s rate is higher. (Children are individuals under 19 or students going to school full time under 24.)
Under the new law the net unearned income is taxed under the brackets used for estates and trusts, which has a top bracket of 37% starting at $12,500. This will largely not affect those from higher income families since they are paying similar rates, however those in middle class families whose children’s portfolios are doing well could feel more of a pinch. For those children with smaller amounts of unearned income, they come out slightly ahead on this new plan
For more information on how the tax law will affect you and your family and how you can plan for it, contact us at GROCO!