After months of debate and negotiation, a final version of the new tax reform bill has finally been passed by members of the House of Representatives (224-201) and the Senate (51-48). The new legislation is officially named the “Tax Cuts and Jobs Act” and has been signed into law by President Trump. Without any political commentary or agendas, below are just the facts of the major elements of the new tax plan and how they will impact you.
How will the tax reform bill affect American taxpayers?
- Personal income tax rates will decrease for most taxpayers
There will still be seven tax brackets, but the income tax rates will be reduced in five of them. An estimated 80 percent of taxpayers will get a tax cut under the new rates. For a typical family of four that earns the national median income of $73,000, their tax bill will be cut by $2,059.
- The Standard Deduction will almost double
For individuals, the standard deduction will increase from $6,350 currently to the new amount of $12,000. For married couples, it will increase from $12,700 to $24,000.
- The Personal Exemption will be eliminated
As a taxpayer, currently you’re allowed a $4,050 Personal Exemption for yourself, your spouse, and each of your dependents. Under the new tax law, the Personal Exemption will no longer be available, with the idea that other provisions of the law will offset this lack of tax relief.
- Corporations will get a tax cut
The corporate tax rate will decrease from 35 to 21 percent with the expectation that American companies will invest the savings in growth opportunities and creating new jobs and will bring home foreign earnings.
- If you don’t have health insurance, there will be no penalty
Beginning in 2019, the Affordable Care Act’s individual mandate will no longer exist. If you don’t have health insurance then, you won’t have to pay a penalty. But please remember that the ACA laws for 2017 and 2018 are still in place, so make sure you have healthcare coverage now to avoid fines.
- The Mortgage Interest Deduction will remain
For all homeowners with existing mortgages, there won’t be any changes to the current Mortgage Interest Deduction. For those with new mortgages on a first or second home, the Mortgage Interest Deduction will be available for mortgages up to $750,000, down from the current limit of $1 million. However, home equity loan interest will no longer be deductible for anyone.
- The Alternative Minimum Tax (AMT) will still exist for individuals
Commonly known as a supplemental tax on those with higher incomes to offset the benefits they could receive on the standard income tax, the Alternative Minimum Tax (AMT) will be eliminated for corporations, but it will remain for individuals. The exemption will be raised to $70,300 for single taxpayers (up from $54,300 currently) and $109,400 for married couples (up from $84,500).
- The Child Tax Credit will double
Taxpayers will be able to claim a $2,000 Child Tax Credit (previously $1,000) for each qualifying child under the age of 17. This tax credit applies to both single filers and married couples and is fully refundable up to $1,400. Other family-related deductions like the Child and Dependent Care Tax Credit and the Adoption Tax Credit will be preserved.
- The Earned Income Tax Credit will be maintained
For low-income taxpayers, the Earned Income Tax Credit will stay the same to continue to provide much-needed tax relief.
- Estate tax exemption levels will increase
The estate tax will stay at 40 percent, but the exemption levels will double from the current $5.49 million limit for individuals and $10.98 million for married couples to $10.98 million and $21.96 million respectively.
- State and Local Tax Deductions (SALT) will still apply
Under the new law, individuals and families will still deduct up to $10,000 in local property taxes and state and local income or sales taxes.
- Student loans won’t be treated differently
The current deductions for student loan interest will be kept in the new tax law, and tuition waivers for graduate students will remain tax free.
- Medical expense deductions will increase
The new tax law will allow taxpayers to deduct medical expenses exceeding 7.5 percent their adjusted gross income, which will help those with expensive medical bills.
Even though the new tax reform bill, the Tax Cuts and Jobs Act, is designed to make filing taxes simpler, there are many changes that will affect how much you pay in taxes. Be sure to consult a tax professional who can help you get every deduction and tax credit you deserve so you don’t wind up paying more than you should.
For more helpful tax information, contact Liberty Tax® directly at 1-877-at-Liberty, or visit a conveniently located Liberty Tax® office near you. For real-time updates, follow Liberty Tax® on Facebook and Twitter.