The Tax Cuts and Jobs Act of 2017 (TCJA) is the hallmark legislation of the Trump administration, and no American taxpayer was unaffected. But was this legislation a Trojan horse that could lead to you paying higher taxes starting in 2021?
The Joint Committee on Taxation released a chart indicating that federal taxes for those making between $10,000 and $30,000 would actually go up starting in 2021.
The new tax brackets for 2021 have the same rates, and the only changes are the income brackets that have been adjusted for inflation. What's driving this higher tax rate for these particular brackets?
That links back to the Republican efforts to repeal the Affordable Care Act. The TCJA lowered the individual mandate penalty, the penalty paid to the government if you do not have a health insurance policy, to zero. This means there will be no tax implications to not carrying an insurance policy.
Under the ACA, individuals within 100% and 400% of the federal poverty level were eligible to receive tax credits to offset the costs of these plans. With no individual mandate penalty, the expectation is that less people will sign up for insurance. Less people signing up for insurance will lead to less people receiving the tax credits, which would lead to an increase in the average tax rate across this group.
That doesn't mean that you are in the clear if you make above $30,000. Remember how income brackets are adjusted for inflation? The TCJA also changed how inflation is calculated. Tax brackets used to be adjusted off of the Consumer Price Index (CPI), an index that tracks the prices of goods and services across different geographical areas.
The Consumer Price Index tracks how much more you are paying because of inflation each year. But the IRS now measures inflation against the chained CPI. The idea behind the chained CPI is that if prices rise, customers will change their purchasing habits and substitute goods. For example, if the price of orange juice rises faster than the price of apple juice, chained CPI assumes that people will lower the amount of orange juice that they are buying and substitute that by buying more apple juice. CPI tracks a fixed basket of goods while the basket of goods tracked by chained CPI changes periodically.
Because chained CPI assumes that consumers are going to seek out substitutes for products with rising price tags, it rises more slowly than traditional CPI. Thus, the IRS will adjust tax brackets upward more gradually, and you are likely to move into a higher tax bracket faster than you would under the old calculations.
Chained CPI calculates the cost of everyday goods rising more slowly than calculations based on traditional CPI.Federal Reserve Bank of St. Louis
If the cost of consumer prices rises 2% and you receive a similar 2% raise, normally you would be able to maintain your lifestyle. However, if the tax brackets only increase 1.5% because tax brackets are now tied to chained CPI, you will be paying more in taxes because your income and expenses will be rising faster than the rate the IRS is using. Because the tax rate is being adjusted for 2021 and will be adjusted in future years, this will compound over time, and has led to a slew of recent articles discussing a tax hike starting in 2021.
Congress passed the TCJA through budget reconciliation to avoid a filibuster, but that meant that the law could not increase the long-term budget deficit. As a result, Republicans decided to include a provision to have the individual tax cuts expire in 2025 while making the lower corporate tax rates and the chained CPI method of adjusting tax brackets permanent. The increased standard deduction and the larger child tax credit will also expire at this time. And because of the continued use of the chained CPI method, people will actually be paying higher taxes after the TCJA then they would if it had never been passed in the first place.
Whether you are looking for a new job or trying to grow in your current one, getting a certification can be a great way to improve your skills.
Anyone can put that they are proficient in a computer program on their resume but having a certificate can help you stand out amongst the competition and give credence to the strength of your skills.
But what's the best way to invest in yourself without breaking the bank? Some certification programs can cost hundreds if not thousands of dollars. We are going to walk through six of the best certifications you can get for $100 or less.
Who is it best for: Those who work with analyzing and presenting data.
Cost: $100 for Tableau Desktop Specialist; additional certifications are available for a larger fee.
More companies than ever see themselves as data companies. Being able to understand data and use it to guide decisions at your company is often critical to taking on a leadership role. Not to mention, being able to present the data in a clean, attractive, and compelling way can help get buy-in from others in your organization or clients. That's why Tableau is a great tool to have in your toolbox.
Tableau allows you to create interactive visual analytics dashboards. In layman's terms, you can take data; create graphs, maps, or charts; and then allow end-users to interact with these graphics to better understand the information. It's a fantastic tool allowing non-technical users to gain insights for data-driven decision-making.
Tableau Desktop Specialist certification starts at $100 and has no expiration date. There are many videos on Tableau's site to prepare for your exam as well as Tableau Starter Kits allowing you to play around and learn the different capabilities of the program. Tableau offers a 14-day free trial as well as free license for one year for students.
Additional certifications after Desktop Specialist are Desktop Associate and Desktop Professional. Those working with a Tableau server may also be interested in a separate certification as a Server Associate or Server Professional.
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When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
When you're evaluating the benefits of one credit card over another, you have a lot of different factors to consider, including fees, rewards, and interest rates. But does the type of credit card you choose matter at all? Is there any real difference between a Visa and a Discover card with the exact same terms?
There are four major credit card networks in the US: Visa, Mastercard, Discover, and American Express. These companies offer a network of infrastructure that allows merchants to swipe your card and then collect the money from your card issuer. They also set the fees that the merchant must pay to use the network – that's right, every time you swipe your card, the merchant must pay for the privilege of allowing you to do so.
The fees that your merchant pays, also known as interchange fees, are not static; Visa and Mastercard adjust their rates twice a year. Different types of businesses also pay different rates, and they may have different fees for different tiers of credit cards and debit cards. For instance, a Visa debit card transaction at a grocery store may have a smaller interchange fee associated with it than a restaurant even if the transactions themselves cost the same amount.
Online shopping is usually more expensive for the retailer because swiping a card is typically cheaper than typing in your card number on a website.
Of the four major credit card networks in the US, Visa usually has the lowest processing fees. American Express often has higher fees.
|Network||Average Credit Card Processing Fee|
|Mastercard||1.55% - 2.6%|
|Visa||1.43% - 2.4%|
|Discover||1.56% - 2.3%|
|American Express||2.5% - 3.5%|
These are on top of any additional fees that the credit card networks may charge such as charge-back fees, terminal rental fees, and IRS reporting fees. These fees are paid by the merchants, but they also affect you as a consumer. American Express almost always has higher fees than Visa, Mastercard and Discover, which is why you're more likely to encounter a merchant that won't accept it. If you're in the market for a new credit card, you may want to make sure you have a Visa or Mastercard as a backup instead of only having Discover or American Express, as Visa and Mastercard were accepted at 10.7 million locations in the US at the end of 2019, compared to 10.6 million for Discover or AMEX. Costco is one merchant that only accepts Visa, and those without a Visa card may be out of luck.
Issuers vs. Networks
Pull out the credit card in your wallet and take a look at it. Chances are, if it's a Visa or Mastercard, you'll see their logo as well as the logo of the bank that issued it. That's because Visa and Mastercard are card networks, but do not actually issue the cards themselves. They merely facilitate payments between the merchant and the bank that issued the card.
On the other hand, Discover and American Express both process transactions and issue cards. As with the fees, this may not have a big impact on you as the cardholder. However, it does mean that you can't take advantage of having a card linked to your bank. if you are interested in building a deeper relationship with your bank to get better interest rates or have everything consolidated into one app, Discover and American Express may not be the strongest options.
When picking your next credit card, consider the array of cards that you already have, and ask yourself if you are interested in diversifying the different networks that you may be able to use if one retailer does not accept a certain type of card. However, as most of the practical differences are behind the scenes and don't affect you, your considerations should be given to the different types of rewards you can get through the card and the fees you will pay before you worry about which card network you might want to use.
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