As if tax time isn't confusing enough, filing in 2019 will be even more baffling following the new law that significantly changes how federal taxes are calculated.
TurboTax is hoping to make it a bit less baffling.
The tax preparation company is releasing a new tool called the TurboTax Tax Reform Calculator that breaks down how much less, or more, residents could pay in federal taxes in each state — using anonymous TurboTax data on filers from 2017. It also estimates what percentage of state residents will owe more, less, or the same compared with 2017.
The calculator also can be customized by income, filing status and number of dependents to provide a rough idea of what to expect from your federal return in 2019.
“We are helping taxpayers understand their total tax picture,” says Lisa Greene-Lewis, a certified public accountant and tax expert with TurboTax.
TurboTax gave USA TODAY early, exclusive access to the calculator. I tinkered with it to spot larger trends that could emerge from the tax law changes, as well as to glean how my personal taxes could be affected.
Here's what I learned:
Overall, most taxpayers on average should pay $700 to $900 less to Uncle Sam for this year compared with 2017, including in my home state of New York.
Some state residents could get even bigger savings. The average savings in Colorado, Massachusetts and Texas, for example, could total $1,000 or more.
In most states, about 80 percent of tax filers will owe less than they did for 2017. Between 3 percent and 5 percent of taxpayers will owe more on average in each state, including New York. There are a handful of states where a higher proportion of filers are estimated to owe more, including California, Connecticut and Georgia at 6 percent; New Jersey at 7 percent; and Maryland at 8 percent.
People who earn up to $25,000 benefit from the new tax law the least, I found.
For instance, 62 percent of New Yorkers in that lowest income bracket will owe less in 2018, compared with 83 to 96 percent of New York residents in the higher income groups. Instead, 36 percent of these lower-income taxpayers will see no change to what they owe to Uncle Sam versus 2017.
That disparity holds true across the states, I noticed. There are a couple of reasons for this, Greene-Lewis says. First, the tax rate stayed at 10 percent for those in the lowest income range, while the rate was reduced between 1 to 4 percent for higher incomes.
People with lower incomes also may not get the full benefit of the child tax credit, which was doubled by the new tax law but remains non-refundable. That means the credit can't reduce your tax liability below zero and be refunded to you.
Itemize vs. standard deduction
The tool also provides several tabs at the bottom to illustrate how some of the biggest changes from the tax law will affect taxpayers, including the higher standard deduction, the cap on state and local taxes, and the doubling of the child credit.
Let's take the standard deduction, which increased to $12,000 from $6,350 in 2017 for single filers and to $24,000 from $12,700 for married couples filing jointly. TurboTax forecasts that 90 percent of taxpayers will take the standard deduction for 2018, up from 70 percent the year before.
Pass the SALT
Another big change from the tax legislation is the $10,000 limit placed on the state and local tax deduction, known as SALT. Previously, taxpayers could deduct all income, property and sales taxes they paid during the tax year to their state or municipality.
The new cap hurts taxpayers in states with high income and property taxes, such as California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, New York, Rhode Island, Vermont and the District of Columbia.
To ease the pain, many who took the SALT deduction last year will skip itemizing and take the higher standard deduction instead. In New York, the TurboTax calculator estimates that 70 percent of taxpayers who deducted SALT last year will switch to the standard deduction. The result: 88 percent will owe less, while 12 percent will owe more. I'm hoping to be in the first camp.
TurboTax’s calculator also shows how your filing status (single or married), your income and the number of dependents you have affect your tax situation. Children can be a big help.
The child tax credit increased to $2,000 from $1,000 per child, while a new $500 credit for non-child dependents was created. These credits also don't phase out until a married couple’s income exceeds $400,000, up from $110,000 previously.
Entering my specific tax filing situation for household income (above $150,000), dependents (only one) and filing status (married), here's what I found.
TurboTax estimates that I will owe $4,600 less in 2018 than in 2017. Eighty-six percent of similar filers will owe less, and 14 percent will owe more. Again, fingers crossed for that first group.
Of course, this is a general estimate, and such factors as my paycheck withholdings, gains or losses from asset sales, mortgage interest and charitable contributions, affect my 2018 tax return.
“The calculator should be used as an educational tool," Greene-Lewis says, "that allows taxpayers to easily get a deeper understanding of how the new tax law impacts taxpayers with similar situations.”
This article originally appeared on USA TODAY: Do the tax law changes help or hurt you? A new calculator can help you find out