It's April, and the dreaded tax season is here. While you're getting ready to file, you're probably wondering whether President Trump's tax plan will affect your taxes this year. Most of the provisions in the law didn't go into effect in time to apply to this 2017 return, but there are a few that did. Here's what you need to know about how you've already been affected by the sweeping legislation.
The GOP's massive tax overhaul has been fluctuating in public opinion polls over the last few months. A March 7 Quinnipiac survey found that half of the country disapproves of it, up from 47 percent in early February. Earlier figures were even less flattering; at its worst point, 55 percent of the nation disapproved of the law. These numbers will undoubtedly continue to shift as the plan is gradually enacted and people feel its consequences.
Many of the plan's provisions went into effect on Jan. 1, which means that they'll apply to your paychecks — if you withhold tax money from them — this year, and to your tax return next year. But two major provisions were applied retroactively, meaning that they will affect your return this year. Here's what those are.
It's Already Affecting You If... You Paid A Lot For Out-Of-Pocket Medical Expenses Last Year
If you paid out of pocket for medical expenses that exceeded 7.5 percent of your income last year, you can deduct them from your taxes this year. The previous tax code only applied to expenses that were above 10 percent, which means that you'll be able to take this deduction for the first time if your medical costs are between 7.5 and 10 percent of your income, and you'll be able to deduct a greater percentage than you could have before if they are above 10 percent of your income.
It's Already Affecting You If... You Own A Business That Just Made A Capital Investment
If you own a business that bought capital assets — like machinery or other equipment — after Sept. 27 of last year, you'll be able to deduct those recent purchases in full.
What Isn't Happening Yet
The standard deduction has increased to $12,000 for individuals (from $6,350) and $24,000 for married couples (from $12,700), but you won't be able to take it until you file your taxes in April 2019.
Obamacare's individual mandate has been repealed, but that won't go into effect until 2019, so you'll still be fined for not having health insurance until that time (a 2018 fine would appear on your 2019 taxes).
An Additional Consideration: Withholdings For 2018
You're likely already feeling next year's changes if you withhold taxes from your paycheck. The IRS released its new withholding tables in the middle of January and instructed employers to begin using them by Feb. 15. If you've received a paycheck since then — your "take-home pay" with taxes withheld — take a look at how it may or may not have shifted since the very end of last year or the beginning of 2018. It may reflect whether or not your marginal (i.e. base) tax rate has gone up or down under the GOP plan.
But of course, the marginal rate isn't the whole story: As tax policy expert Melissa Labant told Vox, "Rates themselves have gone down. It doesn’t necessarily mean that your taxes have gone down, depending on your personal situation and the types of deductions and credits that you have."
If you've signed a W-4 (i.e. withholding) form for your current employer, you won't need to sign a new one — yet. The new withholding tables work with the old W-4, but because the GOP law does contradict aspects of that form, the IRS is working on another version that will come out soon. It's not yet certain whether every single person will have to sign the new W-4, so for now, just hang tight and know that you might have to complete another one within the next year.
What About Those Corporate Bonuses?
You might be wondering about the high-profile bonuses that some companies gave their employees around the turn of the year in response to the passage of the GOP bill. If most of the law didn't go into effect retroactively, how were they able to dole out that spare cash?
Well, first of all, corporations tend to have a lot of extra money sitting in the bank, meaning that the bonuses weren't exactly enabled by newly freed cash from the tax cuts; some analysts believe that most of the companies that gave bonuses after the tax overhaul did so for political and public relations purposes. But also, corporations pay taxes more frequently than most individuals. They pay quarterly, so they will feel the effects of the enormous corporate tax cut (from 35 percent to 21 percent) when they make their first quarterly payment this month. Some companies were likely giving bonuses in anticipation of those close-at-hand savings.
When assessing how the GOP tax bill affects you in these short-term ways, it's also important to remember to look out for its long-term effects, as well as what it doesn't do. Compare what you're getting to what companies are getting. Keep your eye on wage growth statistics, which will be a key measure of whether or not the law actually brings far-reaching economic boons. The tax code is about how our society is structured, not just whether or not you get an extra windfall in April.