Tax reform "Tax Cut Job Acts" 2017
“Tax Cut and Job Acts” – tax reform in the U.S. 2017
In 2018 it was reported that the taxes paid by WaT students working in the US would no longer be refunded. For the most part it is true, but not entirely...
First, it should be noted that tax reform has largely affected federal tax returns. Since independent states have their tax laws, this reform has not affected them. We have not seen any significant changes yet. So, it is time to get back to the federal taxes.
President Trump's federal tax reform has been the largest in the US for decades. However, it was not a pleasant change for the students who travel to the United States every year to earn some money while enjoying their summer. It is impossible to describe this tax reform without writing 1,000 pages about the topic. It concerns the entire US tax system, including US citizens, and the US companies that have been affected the most.
We will only take a closer look at the essentials for us, and that is how this reform affected the tax liability of WaT students.
The main change brought by the tax reform in connection with the tax return 1040NR-EZ, submitted by WaT students, was the abolition of the so-called Personal Exemption of $ 4,050.
What is Personal Exemption?
Personal Exemption represented a tax-deductible of $ 4,050 (in 2017).
This means that if a student earned e.g. $ 8,505, this deductible item in his tax return reduced his taxable income by $ 4,050.
This item has been canceled temporarily, from 2018 to 2025. It may be possible to use this deductible item again from 2026, but that is not granted.
For comparison, in the table below, we describe the difference in the federal tax return between 2017 and 2018, when the reform was already in force.
|
All amounts in USD |
2018 |
2017 |
|
Total wages |
8,050 |
8,050 |
|
Federal tax withheld |
800 |
800 |
|
State tax withheld |
400 |
400 |
|
Deductible items: |
|
|
|
State tax withheld |
400 |
400 |
|
“Personal Exemption” |
0 |
4,050 |
|
Taxable income: |
|
|
|
Wages minus deductible items |
8,050 – 400 = 7,650 |
8,050 – 400 – 4,050 = 3,600 |
|
Tax 10% |
765 |
360 |
|
Tax overpayment |
35 |
440 |
As we can see in the example, if we earned US $ 8,050 and paid US $ 800 in federal taxes, in 2018, after-tax reform, we would only get back $ 35. In 2017 before the reform it would be $ 440.
We hope this article has helped you better understand the 2017 tax reform and its impact on the calculation of your tax return.
Your Tax Wizard