Although it came a few days later than expected, the Republican Party has finally released its most recent version of their tax bill. Below are 12 major changes that would affect most taxpayers:
- Lowering the number of income tax brackets
Currently, our tax code has seven brackets, but the new bill would lower that to four: 12% for those making less than $45,000, 25% for those making between $45-$200,000, 35% for those making between $200-$500,000, and 39.6% for those making over $500,000.
- Doubling the standard deduction
Singles would see their standard deduction rise from $6,350 to $12,000 and couples filing jointly would see an increase from $12,700 to $24,000.
- Child tax credit expansion
The credit itself would increase from $1000 to $1,600 for every child under 17, although low income families with no income tax would still be given the standard $1000 as a return. However, the phase out income for this tax would increase from $75,000 to $115,00 for single parents and from $110,000 to $230,000 for married parents.
- New family credits
Both credits are in the amount of $300. One credit is for each parent (so $600 for those filing jointly and $300 for single parents). The other would be for any non-child dependents, including elderly parents, adult children with disabilities or a child over 17 whom you are still supporting.
- Elimination of tax exclusion for dependent care FSA’s
Our current tax code allows parents to save up to $5,000 to place into a dependent care flexible spending account, which is considered nontaxable income. The new bill would make that income taxable.
- Elimination of personal exemptions
Current code permits a $4,050 personal exemption for each member of your family, but the new bill would eliminate personal exemptions entirely.
- Does not change 401K’s
Previous proposals had considered lowering the cap on pre-tax contributions to a 401K, but it appears that enough opposed this move so 401K’s were left alone.
- Deductible mortgage interest limited
If you already have an existing mortgage, your deduction would remain the same. However, new mortgages would only be allowed to claim a deduction for interest on mortgage debt up to $500,000, a drop from $1 million.
- Repeals the Alternative Minimum Tax
The tax intended to ensure the highest filers pay some tax by disallowing many breaks, although it usually affects those who make between $200,000 and $1 million, would be repealed in the new code.
- Repeals state and local deductions
The new bill would remove the deduction for state and local income or sales tax. However, in the light of strong opposition, the new bill would preserve a property tax break as an itemized deduction for property taxes up to $10,000.
- Estate tax repealed
The current estate tax only affects those with assets over $5.5 million, but the new proposal would eliminate this tax beginning in 2024 and would raise the exemption amount in the meantime.
- Other deductions repealed
Deductions for student loan interest, moving expenses, alimony payments, medical payments and tax preparation fees would all be removed.