This is an example of a common level of income in our area (an approximation of median household income), with the twist of itemized deductions. This is a two-earner family that each earns the same amount, and just a touch of income other than earnings. Most taxpayers at this level of income would not have itemized deductions in 2017 or 2018, but to illustrate the tax law change, this unusual situation is portrayed.
Our taxpayers in this portrayal are extremely generous, giving more than 10% of their after-tax (including payroll, property, and income taxes, but not sales tax) income to charity. Unusual, but not unheard of. Had they given only 3% of their after-tax income to charity, they would not have itemized deductions in 2017, and their income tax that year would have been $630 higher.
Income is $35,000 in earnings for each spouse, and $200 in other income (let’s say interest). Their itemized deductions were $2,500 real estate tax, $400 personal property tax, $3,000 state income tax, $5,000 home mortgage interest, and $6,000 in charitable contributions, totaling $16,900. They have 2 children under age 17, but have no child care expenses.
| Description | 2017 | 2018 | Change |
| Earnings | $70,000 | $70,000 | |
| Interest | 200 | 200 | |
| AGI | $70,200 | $70,200 | |
| Std/Itemized | 16,900 | 24,000 | 7,100 |
| Pers. Exempt. | 16,200 | 0 | -16,200 |
| Taxable Inc | 37,100 | 46,200 | 9,100 |
| Income tax | 4,636 | 5,166 | 530 |
| Child Credit | 2,000 | 4,000 | 2,000 |
| Net Income Tax | 2,636 | 1,166 | -1,470 |
With the loss of $16,200 in personal exemption deductions, taxable income increased by $9,100. The loss of the personal exemption deduction was partially mitigated by the standard deduction increase. The new child credit results in a whopping overall net tax decrease of $1,470. As a percentage of AGI, their net tax rate dropped from 3.75% to 1.66%.
What about the more frequent case at this level of income, where the standard deduction was utilized in 2017 (because it was higher than the taxpayer’s potential itemized deduction)?
| Description | 2017 | 2018 | Change |
| Earnings | $70,000 | $70,000 | |
| Interest | 200 | 200 | |
| AGI | $70,200 | $70,200 | |
| Std/Itemized | 12,700 | 24,000 | 11,300 |
| Pers. Exempt. | 16,200 | 0 | -16,200 |
| Taxable Inc | 41,300 | 46,200 | 4,900 |
| Income tax | 5,266 | 5,166 | 100 |
| Child Credit | 2,000 | 4,000 | 2,000 |
| Net Income Tax | 3,266 | 1,166 | -2,100 |
Even though taxable income increased $4,900 due to the law changes, the marginal tax rate reduction for this taxpayer from 15% to 12% was enough to cut their tax before credits by $100. With the increase in the child tax credit, their net taxes dropped by $2,100. As a percentage of AGI, their tax rate dropped from 4.65% to 1.66%.