When it was first announced that the new tax bill passed and taxes would be cut by about 25% for many, what first crossed your mind? Finally renovating your bathroom or kitchen? How about paying down debt that’s been dogging your financial picture for some time? Maybe increasing the amount you save for retirement so you can retire earlier? Or, if you’re already retired, how about getting a windfall to help with vacations or other “fun stuff” in retirement?

Whatever you first thought about lower taxes, it was probably good. And, you might have thought the savings will help you and your family make some financial headway. Or will they?

Will you get much of a tax cut?

The Tax Cuts and Jobs Act of 2017, among other things, changes both the tax rates and the amount of personal deductions allowed for taxpayers. The biggest benefits will go to American corporations and high-income individuals. For major corporations, a huge tax cut is coming: a dramatic drop from a 35% corporate tax to 21%. This may ultimately translate into raises for some workers or new opportunities for advancement. For those who are among the tip-top 1% of all wage earning women in America, their highest tax rate decreases from 39.6% to 37%. If you are part of a household with income over $600,000, whether you earn it personally, your spouse earns it, or the two of you in combination earn it, the safe bet is that you’ll have a significant windfall in your 2018 paychecks.

Yet, what about those who earn less than millions of dollars? Is there much of a boost coming this year? Will they be shopping with their tax savings, doing more in retirement, or wondering what all of the hype is about? As always with tax situations, you have to pull back the covers and do some math to figure out the answers.

There is good news to report. Overall there are benefits in terms of paying less in taxes for nearly everyone with this tax bill. If you get a paycheck or take distributions from IRAs, 401(k)s, 403(b)s and the like, the vast majority should see an increase in take-home pay. Getting more income is better than getting less income. However, thinking that a 25% decrease in taxes is going to help your household get on sturdier financial footing may be stretching things. The numbers show that those who make more will also get more.

So, what will the new tax bill buy you?

Let’s look at a few situations and implications of the tax cuts on various households. These are simplified examples and do not represent what your personal tax liability will be. (Meet with your personal tax advisor to assess your own situation.) However, there are a few key pieces to the tax puzzle that are important to understand and serve as the assumptions used to compare various situations:
Each scenario that follows uses AGI – adjusted gross income. This includes wages from work, if you are still working, plus income from other sources such as IRAs, pensions, or Social Security. And income is offset by any deductions for specific, allowable expenses as applicable. In other words, AGI is the total on the bottom of page one of IRS form 1040.

These scenarios use only the standard deduction and personal exemption to calculate taxable income, and these have changed in the new tax law:

In 2017, the standard deduction is $6,350 for single filers plus a personal exemption of $4,050 for a total of $10,400. For 2018, the exemption is eliminated but the standard deduction has increased to $12,000.

For those who are married filing jointly, it’s a similar situation. In 2017, the standard deduction was $12,700 with a personal exemption of $8,100 for a total of $20,800. In 2018, the standard deduction is $24,000.

Tax brackets shifted between the two years and some of the rates were decreased. One good resource to see the difference in brackets and rates is from Bankrate.com.

Keep in mind that the goal of this quick “look at the math” was to see how much more money might be available to play with or pay for goals since last year (2017). Here is the bottom line comparison:

If you are a single, working or retired, with an AGI of $45,000, you could see a total increase of about $950 from tax savings. That works out to about $18 more a week (or about $79 a month) than you would have received in 2017. In this case, there is a 25% reduction in your tax bill, but the amount you’ll have to spend might leave you less than excited.

What if you are a single making $115,000? In this situation your taxes could fall about 17% resulting in a tax reduction of about $3,200 for the year, or $270 per month. If you direct this increase toward reducing debt or increasing your retirement savings, it could be a powerful financial reward.

Now, let’s take a look at a married couple, whether working or retired, who lives in a household with an AGI of $58,000. In 2017, they would have a tax bill of about $4,600. That should drop to about $3,700 in 2018, a 25% decrease in taxes owed. But, the household income increases only by about $18 a week. Not a substantial increase in cash, but it’s still more to use toward meeting the family budget.

For those in higher income households, they’ll see an even better tax reduction than single counterparts on a percentage basis. For example, a couple with a household AGI of $125,000 is on track to see a tax reduction of 24% and a monthly income increase of $285.

In many cases, especially as household incomes rise, there may be even more tax reductions if itemizing offers better results than using the standard deduction. It will be important to compare the two options—using the increased standard deduction vs. itemizing—to determine your more favorable tax outcome.

At the end of 2018, due to the new tax law, most should find that they had more spending or saving money to work with. Whether it’s a modest amount or a significant amount depends on your AGI and your overall tax situation. Regardless of how much an increase you get, here is a case where more is more. More money buys you more opportunities or helps you eliminate some debt.

More money in your pocket gives you an option to save more for retirement. Maybe just not as much as you were hoping for.