Q&A – When Do the New Tax Cuts from the BBB Kick In?

The way the law was written, everything in it began immediately unless otherwise specified in the bill (and there’s a lot of that – specifically on the spending side).

Episode Transcript

Speaker 1 (00:03):
Your questions, Brian's answers. It's time for today's Q and
A of the day. This is the Brian Mud Show. Yeah,
today's Q and a. When do the new tax cuts
from the BBD kick in? This is brought to you
by listen ashes check mark collections each day I featuring
listener question sent by one of these methods. You may
email me Brian Mud at iHeartMedia dot com, hnd me

(00:26):
up on social at Brian Mud Radio. You may also
use the iHeart Radio talkback feature.

Speaker 2 (00:30):
We would love it.

Speaker 1 (00:31):
If you would love us, go into the iHeartRadio app.
This could be done in your car or on your
phone mobile device. Make us your number one preset and
the Brian Mudshow podcast your number two preset. While you've
done that, let's for a little microphone button in there,
see it, tap it You may lay down a message,
perhaps for a future Q and A. Today's note this

(00:51):
at Brian Mud Radio. It's a great day for America.
When do the new tax cuts kick in? The impacts
will be huge? Yeah, sure enough. Well this Senator Bill
Haggerty talking about it on Fox yesterday.

Speaker 2 (01:06):
So we're going to be rebuilding our military, our defense.
We're going to be rebuilding our energy independence and on
shoring energy here in America, making us dominant again. If
you think about it from the perspective of the working
man and woman, they're looking at about a ten thousand
dollars increase in take home pay.

Speaker 1 (01:20):
Huge, huge, huge, huge money.

Speaker 3 (01:25):
It will be huge.

Speaker 1 (01:27):
This was something that I've been telling you for a while,
and I suppose you could start by saying that the
new tax cuts that are in the Act BET are
known as the BBB. They were signed in a law
by President Trump on Independence Day. They've already kicked in.
Didn't even have to wait until today for the need.

(01:49):
They actually kicked in January first, as soon as President
Trump put pen to paper, they kicked in January first.
They were made retroactive and understanding tax law.

Speaker 3 (02:02):
Obviously not the easiest thing to do. See the look
on Joel's face. I got a down pat man, I
could do this story. Okay, just kidding. It's complicated. Tax
law is complicated, and in this case, it's maybe even
a little bit more complicated than a lot of tax
changes because there are various layers to the BBB, and

(02:25):
there also are very different ways that the tax cuts
are being applied. Most of it has to do with
deductions and tax credits. So a few different lanes that
I want to highlight here.

Speaker 1 (02:37):
First, what the tax law did first and foremost is
made the original tax cuts from twenty seventeen the Tax
Cutting Jobs Act permanent, all right, So that is the
law of the land. Heretofore unless Congress changes it in
the future, won't be phased out, just exists. The next
piece to establish the new tax cuts and increasing tax deductions,

(03:00):
and then the third piece making the tax policy retroactive
to January first of this year. So the way the
law was written, everything in it, not just taxes, but
everything in it began immediately unless otherwise specified in the bill.
And there's a lot of that, specifically on the spending side,
when things phase in or phase out what have you,

(03:21):
at different dates. But as mentioned, new tax breaks in
the law all made rights were active to January first,
meaning that you'll realize the benefit from the additional tax
cuts when you file your taxes next year. And while
the focus of the new tax cuts has been on
tips over time and increased deductions generally, you have actually,

(03:43):
by my count, twenty seven different personal income tax changes
in the new law. The law wide reaching, including for example,
increasing the total amount of charitable contributions that you can
deduct using the standard deduction. Seemingly small change alone will
lower the tax burden for an estimated eighty one percent

(04:04):
of tax filers. So in other words, there are bound
to be several likely pleasant surprises when it comes to
filing your taxes next year based on deduction limits of
nothing else. But that's really the key. The benefits of
the Trump two point zero tax cuts will largely be
felt when filing taxes, as opposed to say, day to
day when you collect a paycheck, unless I'll come back

(04:27):
to that point here in a minute. On that note,
I want to focus on the big three categories, tips,
over time, and social security. The way no tax on
tips works is like this. A deduction of up to
twenty five thousand dollars on tipped income is available when
you file taxes, okay, So that effectively covers the first
one hundred and fifty thousand dollars in tipped income, which

(04:48):
by the way, is over ninety nine percent of all
people who earn tips for a living. So tipped income
over one fifty would be taxed. But what that means
kind of instructively, you might think, oh, you know, if
I earn tip income, just we don't even report this anymore.
I just put in my bocket walk way at the
end of a shift. No, Actually, what it means is

(05:08):
that the tips incup is still to be reported by
employees and employers to the IRS, with the deduction kicking
in when it's time to file taxes. The way no overtime,
no tax and overtime works is similar a deduction of
up to twelve thousand, five hundred dollars per overtime pay
available for those earning overtime when filing taxes. Similarly, this

(05:32):
phases out after one hundred and fifty thousand dollars. So
once again we see that overtime pay will still need
to be reported to the IRS by employers, with the
reconciliation taking place when filing taxes. So the way no
tax on Social Security works is like this, Senior sixty
five and older will receive a new six thousand dollars deduction.

(05:55):
And so what that six thousand dollars deduction effectively does
is it covers taxes on Social Security for total reported
income up to seventy five thousand dollars per tax filer.
So in other words, if you want to use kind
of like this slogan language, it's no tax on tips
for the first one hundred and fifty thousand, it's no

(06:17):
tax on overtime for the first one hundred and fifty thousand,
it's no tax on Social Security for a senior's first
seventy five thousand dollars in reported income. Right, So the
deduction is the key to understanding how this works and
when you'll see the benefit. Technically you already have been
against it January first, but may now notice it, like

(06:41):
you have the ability to realize this or next year
when you file your taxes if you just wait and
do nothing. So the key to this right now, it's
my message to you today is adjusting federal withholding. With
over eighty percent of Americans having received an additional tax
break this year, it would be wise to revisit federal
income tax withholding, having less tax deducted from your paycheck

(07:03):
throughout the year. That way you can begin to benefit
right away and with every paycheck, and you would not
be giving perhaps Uncle Sam an interest free loan throughout
the year. So hopefully that's helpful,