There have been many changes to 2018 taxes in the recently passed GOP tax reform plan. Most of the tax rates and income thresholds have changed from 2017. Though, there are still seven brackets.
There is a common misconception that if someone crosses into the next tax bracket by even just $1 their entire income will be taxed at the new higher percentage. This isn’t the case. Just the amount earned into the next bracket will be tax at the increased rate. This is also referred to as marginal tax rates.
For this example we’ll assume that someone is a single filer and made $38,701 this year. The top of the 12% tax bracket is $38,700. They will be taxed $4,453.50 for the $38,700 and then they will pay 22% on anything above $38,700 up to $82,500. So they will pay 22% on the $1.00 amounting to $0.22 for a total of $4453.72. Not 22% of the entire $38,701.
Here are the current tax brackets: