President Trump announced his proposed tax reform framework Sept. 27 at the Farm Bureau Building in Indianapolis.
“Our framework is based on four key ideas,” Trump said. “First, we will cut taxes for the everyday hard-working Americans…Under this framework, the first $12,000 of income earned by a single individual will be tax free. A married couple won’t pay a dime in taxes on their first $24,000 of income…they can spend their money on their family, their children or what they have to do. In other words, more income for more people will be taxed at a rate of zero. At this zero percent rate, taxable income will be subject to just three tax brackets of 12 percent, 25 percent and 35 percent.”
The proposed framework will also include plenty of changes to how businesses are taxed.
The corporate tax rate will drop from 35 percent to 20 percent, a 25 percent rate for pass-through businesses, elimination of some deductions and a one-time repatriation tax for U.S. owned companies that have overseas assets.
Understanding federal taxes is a lot like reading Shakespeare written backwards. It is very confusing, complex and makes you hate your life. Even so, it is very important for college students to understand how they will be taxed.
So, let’s break down the proposed tax reform framework into something more understandable.
Trump’s framework would reduce the number of tax brackets from seven to three. This would make it a lot easier for individuals to know at which rate they will be taxed.
The downside is the new brackets will have to cover a very wide range of incomes.
Here comes the confusing part, those currently being taxed at the lowest rate, which is 10 percent, would actually being paying less in taxes even though their tax rate will increase.
Tony Nitti, a tax partner in WithumSmith+Brown’s National Tax Service Group, explains this in his recent article on Forbes.com
“…Let’s assume you’re a single taxpayer who earns $30,000 annually,” Nitti said. “Under current law, you would be entitled to $6,350 standard deduction and a $4,050 personal exemption, meaning your taxable income would be $19,600. The first $9,350 of this income would be taxed at the 10 percent rate, while the excess would be taxed at 15 percent, for a total tax of $2,472. Under this new framework…while the 12 percent lower rate looks ominous, the doubling of the standard deduction to $12,700 means that only $17,300 of the taxpayer’s income is subject to tax. If it is assumed that the 12 percent bracket will apply to an amount in excess of $17,300 – a critical piece of information is as yet unprovided – the total tax bill will be $2,075, $400 less than under current law.”
This is pretty good news for full-time students that work part-time during the semester. The first $12,000 would be tax free and the rest of your income would be taxed at a single rate instead of two different rates.
The $400 extra may not seem like a lot considering rent for a single-bedroom apartment is roughly $750 a month in Omaha but it will come in handy. Four-hundred dollars could pay for a few months’ worth of groceries, give breathing room after paying bills or go into the buying-my-significant-other-the-ring-they-deserve-fund.
Recent college graduates will probably not see much of a change in their taxes.
Kathleen Elkins states the average 2017 college graduate will make $19.18 an hour in her article on CNBC Money. This hourly rate translates to just under $40,000 a year. That would fall into the 25 percent tax rate under both the current and proposed framework.
The idea behind dropping the corporate tax rate by 15 percent is to have employers’ ease the load of taxes employees cover. This should increase wages somewhat but there are no guarantees that they will.
Out of all the complexities, the only two things that are certain are death and taxes. Taxes are 100 percent the worst to deal with.