Yesterday, the new withholding rates on federal taxes took effect meaning millions of workers will see a few extra dollars in their paychecks as the Bush tax cut reduces marginal rates on all tax brackets.
The law extended the 10 percent tax rate to cover the first $7,000 of taxable income for single persons (up from $6,000 — an annual savings of $50 right there). It’s extended to $14,000 for married couples. That helps all taxpayers.
There’s also "marriage-penalty" relief: The standard deduction for married couples is going up to $9,500 (that makes it exactly twice the standard deduction for singles) and the 15 percent tax rate will be extended to $56,800 (from $46,450) of taxable income.
In addition, each tax bracket above 15 percent has been cut by 2 percentage points except the highest rate, which fell from 38.6 percent to 35 percent.
"The savings are going to be pretty nice, especially for married couples," said David Mellem, a partner in Ashwaubenon Tax Professionals in Green Bay, Wis.
According to the center-left Brookings Institution, the average savings for a suburban family making $50,000/year will be around $1,133. That’s hardly chump change. Even the single members of the lower tax brackets will see about $53 returned to them thanks to the lowered tax rates. As the article points out, married couples will see some of the biggest returns as the marriage penalty is phased out. Even a few extra dollars can make a difference, and the new tax rates ensure that more American workers get to keep more of what they’ve earned.