Business & Economy

Here's what this year's tax changes mean for 4 California households

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It's that time of year. Though April 15 may seem far in the future, a W2 arriving in the mail signals it's time to start thinking about taxes. 

And this year, many people are probably wondering what the GOP's tax overhaul — signed into law by President Trump at the end of 2017 — will  mean for their 2018 taxes.

KPCC has been breaking down what these tax changes have in store for a group of Southern Californians at different income levels.

From low-income grad students to highly paid professionals, they all agreed to share their most recent tax returns with KPCC and have them analyzed by Los Angeles-based H&R Block tax preparer Aaron Martinez. He looked at what each household reported to the IRS in 2016, then calculated what they would have paid instead under the new laws. 

Martinez said these cases show, "Most people will see a reduction in their tax. But not everyone."

Here's a look at how this year's tax changes could affect four Southern California households in four very different ways.

LOW INCOME

Christine Vega
Income: $23,446
Outcome: refund increases by $400

Christine Vega helps run an advocacy group for parenting students at UCLA called Mothers of Color in Academia. Jan. 16, 2018.
Christine Vega helps run an advocacy group for parenting students at UCLA called Mothers of Color in Academia. Jan. 16, 2018.
David Wagner/KPCC

Christine Vega is in her sixth year of working toward her PhD in education at UCLA. She's also the mother of a four-year-old son.  

"It's very much sewn into the culture, especially in academia, to not have children while you're studying for PhD," Vega said. "But I think I've always fought to say, well I can do both. And I'm going to do both."

Vega earned earned $23,446 in 2016. She has help from her partner, also a PhD student. A subsidized apartment and on-campus daycare are also working in her favor. But as a grad student who teaches on the side, she has a pretty tight budget. 

Vega's tax rate won't change. The lowest income bracket will remain taxed at 10 percent. But her standard deduction will change. It will be $600 more than what she claimed in 2016 using the old standard deduction plus two exemptions (one for her, and one for her son) that go away under the new law.

In the end, neither of these changes will affect Vega's taxes all that much. What really matters for Vega — and for other parents like her — is what's happening to the Child Tax Credit.

In 2016, Vega received enough tax credits to wipe out what she owed to the IRS. That would happen under the new law too. But a boost to the Child Tax Credit would increase her refund, putting another $400 in her pockets.

Vega said she uses her annual refund to budget for the summer, keeping her afloat between academic semesters. To her, $400 isn't a life-changing amount of money. 

"It's not a big difference," Vega said. "But it's OK. That's grocery money."

MEDIAN INCOME

The Malone-Franklins
Income: 
$69,192
Outcome: tax cut of $1,497 

Megan and Marlee Malone-Franklin operate a small business called Hero Birth Services.
Megan and Marlee Malone-Franklin operate a small business called Hero Birth Services.
Robyn Tiffany

Fullerton married couple Megan and Marlee Malone-Franklin together made $69,192 in 2016. That's not far from Orange County's median household income of $78,145, according to U.S. Census data. 

They earn income from a variety of sources, including Megan's job at a music nonprofit and her professional choral singing, as well as the couple's small business centered around supportive services for pregnant women. 

The two millennial renters hope to buy a house some day. And they would like to have kids of their own. But they say right now, their finances can't support those moves.  

"I still very much feel like we're building our lives. And I feel like it's taking a lot longer than we would like," said Marlee. 

The Malone-Franklins stand to see a $1,497 tax cut under the new rules. That's because their standard deduction will go up — lowering their taxable income more — and the tax rate in their top bracket will go from 15 to 12 percent. 

But the couple wonders if this tax cut is worth it. They said they were still concerned about what these changes will mean for lower income taxpayers. And they worried about what could happen to premiums on Obamacare health plans.

The new law eventually does away with the penalty for not buying health insurance — a measure that could lead to healthy people dropping their plans, which would increase premiums for those who need to stay on them.

Marlee is on an Obamacare plan. And the couple says many of the clients for their small business are too. They worry if Marlee's premiums go up, it could offset their tax cut. And that cash-strapped clients may stop spending out-of-pocket on their birth services, which are not covered by insurance. 

Megan said $1,490 is nothing to scoff at. But she felt it wasn't enough to get them all that much closer to reaching their goals. 

"I mean, that's good," Megan said. "Does this get us a down payment in Orange County? No." 

UPPER INCOME

Rosa Castro
Income: 
$140,468
Outcome: tax increase of $4,076

Rosa Castro has been taking out loans to fix up her house in Altadena since buying it about three years ago. Dec. 27, 2017.
Rosa Castro has been taking out loans to fix up her house in Altadena since buying it about three years ago. Dec. 27, 2017.
David Wagner/KPCC

Rosa Castro works as a board administrator at the Metropolitan Water District. She earned $140,468 in wages in 2016.

Castro is happy with that salary. She grew up in a low-income Compton home, a daughter of immigrants. She received a full scholarship to attend Cal State Fullerton and says she worked hard to get where she is today. 

"I've had the opportunity to bring my mom to the office since I got a promotion about seven months ago," Castro said. "It feels nice for her to see all that I've been able to accomplish."

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But achieving a middle class lifestyle in Southern California has been expensive for Castro. She bought a house in Altadena about three years ago. Her monthly payments are steep, but she counts on tax breaks, such as her property tax deduction, to make it work.  

"If those tax deductions weren't there, I really wouldn't have done it," she said. "I would've just stayed in an apartment and just kept going and never owned a property." 

After adding up things like her property taxes, her state income taxes and her job expenses, Castro was able to take $57,875 in itemized deductions on her 2016 taxes. But that's all about to change in a big way. 

Deductions for state and local income, sales and property taxes will be capped at $10,000 under the new rules. And Castro will lose her deductions for unreimbursed job expenses. She'll still be able to deduct her mortgage interest. But all told, her itemized deductions will plummet to $35,291.

Any tax cut Castro would've seen from her reduced rate is completely offset by all the deductions she's losing. If she had paid her 2016 taxes under the new rules, they would have gone up by $4,076. 

"People think with my salary, four thousand dollars is not that much," Castro said. "But it is. This could be my whole vacation this summer. I could pay for some of my mom's medical costs. Or refinish my floors and repaint stuff in my house. It's a lot of money."   

TOP EARNERS

The Glackins
Income:
declined to disclose publicly
Outcome: tax cut of $1,919

Mary Ellen Glackin poses with her husband and children (minus her youngest) in this family photo.
Mary Ellen Glackin poses with her husband and children (minus her youngest) in this family photo.
Mary Ellen Glackin

Mary Ellen Glackin is a mother of five in Mission Viejo. Her husband Mark, the main breadwinner in the family, works in the pharmaceutical industry.

The Glackins didn't want to reveal in this story exactly how much they earn, but they agreed to disclose that in 2016, they had a mid-six figure income that put them in the top one percent of California earners.

Mary Ellen says she's concerned with how the GOP's tax cuts will be distributed to people in different states, and at different income levels.

"I would have liked to have seen the bill be fair to people across the country, and to have it more focused on people who make less," she said. 

The Glackins will see a big cut in their top tax rate. That bracket is going from 39.6 to 37 percent under the GOP's law. But like Rosa Castro, because they live in a high-tax state where many residents itemize their federal returns, the Glackins are about to lose a lot of deductions.

In 2016, they took $103,627 in itemized deductions. Under the new rules, they would have to claim much less: $44,219. The Glackins will still get a tax cut. But it comes out to a relatively small $1,919, a number that doesn't feel like a game-changer to Mary Ellen. 

"I would imagine that there are a lot of high-income people living in California, living in the houses all around us, who are expecting some huge windfall," she said. "And they're about to just get a couple pennies on the dollar. I think they're going to be pretty disappointed."

Critics of the Republican tax law have charged that it's skewed toward the rich. But H&R Block's Aaron Martinez said that can depend on where you’re rich. The new rules don’t always give much back to highly paid workers in a state like California. They pay higher state income taxes than residents in other states, and now their ability to deduct those taxes will be capped.

"The impact to residents of California is going to be different than a state like Texas or North Carolina or Florida," Martinez said. "They're going to get more of a benefit out of it than what we will get."