Here’s How Taxes Will Really Change For Texas Residents In 2018

With the 2017 tax season officially out of most Texans’ minds, the focus is now on the 2018 tax year and how individual income taxes will change for residents of the state because of the Tax Cuts and Jobs Act. Most Americans began seeing changes in their paychecks earlier this year but the distribution of the individual income tax changes vary.

According to a new report from the Tax Policy Center, the new tax law will cut individual income taxes for 65 percent of households overall — an average cut of $2,200 — but raise taxes for about 6 percent of households, averaging an increase of $2,760. The cuts as a percentage of after-tax income will be the highest for high-income households and the report estimated that between 60 to 76 percent of taxpayers in every state will receive a tax cut.

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.

On average, the individual income tax cut is 1.8 percent of after-tax income across all states but in Texas that figure is 2.1 percent, according to the report. The report found that for states with high state and local taxes, the individual income tax cuts will be lower than average.

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

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.

On average, after-tax income will increase 1.8 percent and the overall average tax cut is $1,330.

In Texas, after-tax income will increase 2.2 percent and the overall average tax cut is $1,670.

According to the report, 68.1 percent of Texans will see their taxes go down, and the average tax cut will be $2,520, which is above the national average of $2,200. The report says 5.5 percent of Texans will see an increase in their taxes, which will average $1,250 and is below the national average of $2,760.

The size of the tax cuts varies across states and according to the report, 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 and 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 due to the cap on the SALT deduction, high-income earners in a state like New York receive much less of a tax cut than high-income earners in a state like Texas. However, high-income earners in New York who were most likely to pay the alternative minimum tax will now be able to benefit by taking the SALT deduction and their tax cut is much closer to the national average.

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.

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