Republicans released the final version of their tax reform package on Friday. The bill aims to overhaul the tax code and ease the tax burden on Americans and businesses. Congress is on pace to have the bill on President Donald Trump's desk for approval sometime next week.
How will the bill help individuals and families?
- Individual tax rates: Current law has seven rates ranging from 10 percent to 39.6 percent. The bill proposes seven rates ranging from 10 percent to 37 percent. The big difference is when the highest rate kicks in. Previously, the top rate kicked in for people with incomes above $418,401 for single people and $470,701 for married, joint filers. The proposed top rate would kick in at $500,000 for singles and $600,000 for married, joint filers.
- Deductions and exceptions: Currently, the standard deduction for singles is $6,350 while it is $12,700 for married, joint filers. The proposed law would nearly double both to $12,000 for singles and $24,000 for married, joint filers. The proposed law would also scrap personal exceptions.
- Individual Alternative Minimum Tax: The proposed law would raise the income trigger level for the dreaded AMT. Currently, that level is $54,300 for singles and $84,500 for married, joint filers. The law would raise it to $70,300 for singles and $109,400 for joint filers.
- Obamacare individual mandate: Individuals who fail to buy health insurance are subject to a "tax" for not doing so. The tax bill proposes to repeal the $695 penalty.
- Child tax credit: Current law provides a $1,000 credit per child under 17. The credit begins to phase-out for couples who earn more than $110,000. The proposed law would double the credit to $2,000 per child under 18 and raise the phase-out threshold to $500,000. The bill would also preserve the adoption tax credit.
- The Estate Tax: Currently, estates worth more than $5.49 million for individuals and $10.98 million for couples are taxed at 40 percent after death. The proposal would double the threshold.
- Retirement plans and charitable giving: Everything would remain the same under the proposed law.
- State and local deductions: The proposed plan would limit state and local deductions at $10,000. The deductions can include a combination of state and local sales, income or property taxes.
- Mortgage interest deduction: It will only change for new homeowners, who will be allowed to deduct mortgage interest at a cap of $750,000 in mortgage debt, down from $1 million.
How will the bill help businesses?
- Corporate tax rate: Currently, the corporate tax rate is set at 35 percent. The proposed bill would slash it to just 21 percent.
- Corporate Alternative Minimum Tax: The proposed law would completely repeal it.
- Pass-through deduction: Currently, pass-through businesses pass its income to its owner, who pays individual taxes on the income. The proposed law would allow for a 20 percent deduction on that income. Limits would begin at $315,000 for married, joint filers and half of that for single filers.
When will Congress vote on it?
They plan to pass the legislation sometime next week. According to CNBC, House Majority Leader Kevin McCarthy (R-Calif.) said the House will hold a vote on the bill by Tuesday. The Senate has yet to schedule a concrete time for its vote.