The first IRS analysis of a large majority of filings for the 2018 tax year — the first under the Tax Cuts & Jobs Act enacted the previous December — found that taxpayers reporting at least $500,000 in income was the lone bracket to incur higher tax liabilities in the aggregate.
The wealthiest earners saw their average tax liability decline under the new law, however, not at the same rate as most taxpayers in lower income brackets.
Of earners who generated income in excess of $1 million last year, taxpayers incurred nearly $1.9 billion in additional tax liabilities, an increase of 1.4 percent. But an analysis of the IRS data shows that with an extra 13,100 taxpayers nationally reporting nine-figure income last year compared to the number in 2017, the average tax liability dropped 4.7 percent.
According to the Tax Foundation, the data represents about 80 percent of all filings the IRS will receive this year, reflecting taxpayers who took extensions on submitting their final forms. With fewer than 3.7 million fewer filings in this year’s preliminary data compared to a year ago, the final figures could move the needle in either direction on the IRS calculations on total tax liability.
But assuming no major swings in the final report — the IRS report suggests that many taxpayers saved on their federal income taxes, even if Connecticut and other high-cost states residents lost deductions they had been able to claim in the past for state and local taxes in excess of $10,000, a new threshold set under the new federal law.
From the get-go, the Trump administration’s tax cuts have been derided by critics as a boon for the wealthiest taxpayers and a load on the national debt, with several Democrats in last week’s kickoff presidential debates suggesting they would tackle elements of the Tax Cuts & Jobs Act in the upcoming campaign.
But more than half of the tax brackets studied by the IRS had declines in total tax liability of 10 percent from 2017, led by a nearly 15 percent drop for those earning between $40,000 and $50,000. The Census Bureau computed a median U.S. income of more than $61,000 last year.
For the income bracket that includes the Connecticut median income topping $73,000, overall tax liability dropped by 14.5 percent, with the next highest bracket down 12.4 percent, encompassing those making between $75,000 and $100,000.
The lone tax brackets where the average U.S. earner absorbed an increase in the overall federal tax liability was for those making between $5,000 and $15,000, but the preliminary IRS data shows that far fewer people filed income for those brackets in 2018 compared to the year before.
Alex.Soule@scni.com; 203-842-2545; @casoulman