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The Trump Tax Plan: How Does It Affect Me?

Update: President Trump signed the tax bill into law on December 22, 2017. Many of the changes will go into effect in January 2018 (though they won’t impact the 2017 taxes you will file in April 2018) and employees can expect to see changes to their paychecks starting in February 2018.

Earlier: The House passed the final version of the tax reform bill on December 20, with a final tally of 224-201. Twelve House GOP members opposed the legislation and no Democrats voted for it. Originally, the House passed the bill on December 19. A re-vote was necessary because several provisions of the bill reportedly violated Senate rules and needed to be removed. The Senate passed the corrected version of the bill in the early morning hours of December 20, voting 51-48 along party lines.

 

After months of speculation, President Trump and House Republicans unveiled their long-awaited tax bill, “Tax Cuts and Jobs Act” on November 2, 2017. The bill calls for sweeping changes to current tax law.

If it passes, how would the Trump tax plan affect you? It depends on your income, your current filing status and the deductions you take. Take a look at our guide to the main features of the Trump tax plan.

Trump Tax Plan Maintains 7 Tax Brackets

Trump’s tax plan originally called for cutting the number of tax brackets in the federal income tax system from seven to four, but the final version of the bill maintains the seven brackets. It does, however, change them. The new brackets would have rates of 12%, 25%, 35% and 37%. The number of brackets (seven or four) and the tax rate for each bracket has been a point of negotiation as Congress tries to reconcile the House and Senate versions of the tax bill.

It’s worth noting that the highest proposed tax rate (37%) would apply to single taxpayers with an income threshold of $500,000 and to married couples earning more than $600,000. Under the current income tax brackets, the highest rate of 39.6% rate kicks in for single taxpayers earning $418,401+ and for married couples earning $470,701+.

This is how Trump’s tax plan stacks up against current federal income tax brackets:

CURRENT 2017 FEDERAL INCOME TAX BRACKETS
Single Filers Married Filing Jointly Tax Rate
$0 – $9,325 $0 – $18,650 10%
$9,326 – $37,950 $18,651 – $75,900 15%
$37,951 – $91,900 $75,901 – $153,100 25%
$91,901 – $191,650 $153,101 – $233,350 28%
$191,651 – $416,700 $233,351 – $416,700 33%
$416,701 – $418,400 $416,701 – $470,700 35%
$418,401+ $470,701+ 39.6%

 

TRUMP’S PROPOSED INCOME TAX BRACKETS
Single Filers Married Filing Jointly Tax Rate
$0 – $9,525 $0 – $19,050 10%
$9,526 – $38,700 $19,051 – $77,400 12%
$38,701 – $82,500 $77,401 – $165,000 22%
$82,501 – $157,500 $165,001 – $315,000 24%
$157,501 – $200,000 $315,001 – $400,000 32%
$200,001 – $500,000 $400,001 – $600,000 35%
$500,001+ $600,001+ 37%

Wondering what the proposed income tax brackets will mean for you? This article takes a deeper look at how the Trump tax plan will affect families in 20 big cities across the country.

Trump Tax Plan Calls for Increasing the Standard Deduction

There are deductions to consider as well. Changes could be coming for taxpayers who take the standard deduction and for those who itemize. The Trump tax plan calls for increasing the standard deduction to $12,000 (for individuals) and $24,000 (for married couples filing jointly).

Currently the individual standard deduction is $6,350 for individuals and $12,700 for married couples. In other words the standard deduction will nearly double under the Trump tax plan.

CURRENT 2017 STANDARD DEDUCTION
Single Filers Married Filing Jointly
$6,350 $12,700
TRUMP’S PROPOSED STANDARD DEDUCTION
Single Filers Married Filing Jointly
$12,000 $24,000

Trump Tax Plan Calls for Big Changes to State and Local Tax Deductions (SALT)

Trump tax plan

Back in September, Trump released an initial plan that called for eliminating almost all itemized deductions, including state and local tax deductions (SALT), but keeping those for charitable deductions and mortgage interest. Currently, taxpayers who itemize can write off their state and local income, property and general sales tax payments on their federal tax return. This effectively prevents double taxation.

The newly released tax bill proposes major changes to state and local tax deductions. Under Trump’s plan, taxpayers would still be able to deduct state and local property taxes, though this will be capped at $10,000. However, they will no longer be able to deduct state and local income and sales taxes. This is one of the most hotly debated aspects of the plan and is expected to be unpopular among Republicans in high-tax states.

Trump Tax Plan Calls for Changes to the Mortgage Interest Deduction

Currently, homeowners who itemize their taxes can deduct their mortgage interestpayments on mortgages up to $1 million. The final tax bill from Congress calls for limiting the deduction to mortgages up to $750,000. However it is not retroactive, meaning that current homeowners will not be affected but for future buyers it will be capped at $750,000.

The New York Times described this proposal as one of the “biggest flash points” on the plan and predicted it would be one of the more contentious moves.

Trump Tax Plan Calls for Increasing the Child Care Tax Credit

The current child care tax credit is up to $1,000 per child. It’s a credit as opposed to a deduction. This means that it reduces your tax bill on a dollar-to-dollar basis by up to $1,000 per child. Say for example, you owe the IRS $4,000 and are eligible for the full $1,000 credit, you would now owe $3,000.

The Trump tax plan calls for increasing this credit to $2,000 for children under 17. The bill also changes who is eligible for the credit. Filers may claim the full credit if they have income up to $200,000 for single filers (up from $75,000 currently) and up to $400,000 for married couples (up from $110,000 currently).

On November 9, the House tax writing committee amended Trump’s tax bill to keep the adoption credit. Under current law, the adoption credit is worth up to $13,750 per child.

Trump Tax Plan Calls for Doubling the Estate Tax Deduction

How the Trump Tax Plan Could Affect You

Under current law, the estate tax (40%) applies when multimillionaires transfer property to heirs. The Trump tax plan calls for doubling the estate tax deduction from $5.49 million for individuals and $10.98 million for married couples. This means wealthy families can transfer more money tax-free to their heirs. The final bill from Congress will not eliminate the estate tax  (something which the House bill had proposed).

Trump Tax Plan Calls for Lowering Corporate Tax Rate

The current corporate tax rate’s 35%. Trump originally went on the record saying he hoped it would be slashed to 15%.

However the combined tax plan calls for a 21% corporate tax rate (down from 35%).

 

 

This article is courtesy of AMELIA JOSEPHSON with SmartAsset.com.

Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia’s work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.

Photo credit: ©iStock.com/Dean Mitchell, ©iStock.com/Geber86, ©iStock.com/Juanmonino

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