How Taxes Will Really Change For Pennsylvanians In 2018

With the 2017 tax season officially out of our minds, the focus now shifts to the 2018 tax year and how individual income taxes will change for Pennsylvania residents due to the Tax Cuts and Jobs Act passed late last year.

According to a recent report from the Tax Policy Center, the new law will cut income taxes for 65 percent of Americans by an average of $2,200, but raise taxes for about 6 percent of households by an average of $2,760. The law, which instituted some big changes to the individual and corporate income tax, estate and gift taxes, and certain federal excise taxes, was passed in December.

You may have already begun seeing changes to your paychecks earlier this year. But when all is said and done, and you go to file your 2018 taxes, what should you expect?

In Pennsylvania, 63 percent of residents will see their taxes go down, and the average tax cut will be $2,180, according to the Tax Policy Center. That's just below the national average of $2,200.

Between 60 to 76 percent of taxpayers in every state will receive a tax cut, the Tax Policy Center report estimates. On average, the individual income tax cut will be 1.8 percent of after-tax income across all states, the report says.

The tax cuts will benefit high income individuals the most in 2018, with 90 percent of people in the top-income quintile receiving a tax cut and 10 percent seeing a tax increase.

Nationwide, taxpayers in the lowest income quintile will see an average tax cut of $40, those in the middle income quintile will get an average tax cut of $800 and those in the 95th to 99th income percentile will get an average tax cut of $11,200. The top 1 percent will get an average tax cut of $33,000.

For those in the bottom-income quintile, only 27 percent will see a tax cut and 1 percent will have a tax increase. In the middle-income quintile, 82 percent will get a tax cut and 9 percent will have a tax increase.

Overall, 5.1 percent of Pennsylvania residents will see an increase in their taxes. The average increase for Keystone State residents will be $1,190, according to the Tax Policy Center.

More than 70 percent of taxpayers in the lowest income quintile will see no material change in their taxes, the report says. The report notes that individual income tax cuts, relative to the after-tax income, tilt in favor of high-income taxpayers.

The size of the tax cuts varies across states; much of the difference is due to the limit on the state and local tax (SALT) deduction.

The new tax law capped the SALT deduction at $10,000. According to the tax policy center’s estimate, a quarter of households will claim that deduction on their 2017 return and two-thirds of the benefit from the deduction will go to households earning $200,000 or more.

The tax law does nearly double the standard deduction and as a result, the number of people who itemize their returns will fall, the report estimates.

However, for those who continue to itemize, the limit on the SALT deduction will have a significant impact that will vary by state, according to the report. The report found that without the limit on the SALT deduction, the average income tax cuts and increases in after-tax incomes would be more equal across states for high-income earners.

All the changes to the individual income tax provisions expire after 2025.

You can review the full report here.

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