As expected, the long-awaited GOP tax bill was passed by the House today in a 224-201 vote after several provisions had to be revised to conform to Senate rules. The bill was introduced through a process called budget reconciliation, which allowed for a simple majority vote to avoid a filibuster– a debate tactic used by legislators to stall or prevent a bill’s passage. President Trump is expected to sign the monumental legislation before Christmas.
Despite the fact that Trump and Senate Majority Leader Mitch McConnell have butted heads in the past over issues such as healthcare, Trump congratulated McConnell in a tweet for his “fantastic job both strategically & politically” on the passage of the bill. Trump added, “I could have not asked for a better or more talented partner.”
According to the Tax Policy Center, a non-partisan group, families earning between $50,000 and $75,000 will save $890 per year, while those earning between $100,000 and $200,000 will $2,260 in savings.
Click here to estimate how the new tax bill could affect you and your family.
Key provisions of the Tax Cuts and Jobs Act include:
- Repeal of the individual Obamacare mandate that required individuals to purchase health insurance – Beginning in 2019, the Affordable Care Act’s mandate is eliminated.
- New tax brackets – 5 instead of 7, but the income ranges change. They start at 10% and rise as follows: 12, 22, 24, 32, 35, and 37%. Previously, the rate for people making over $500,000 ($600,000 for joint filers) was 39.6%.
- Changes to the Alternative Minimum Tax (AMT), the additional tax placed on people with higher incomes. The AMT is retained in the new bill for individuals, but the exemption has been increased from $500,000 for individuals and $1M for joint filers.
- State and Local Taxes (SALT) – up to $10,000 in property tax, and state and local income tax can be deducted.
- The Child Tax Credit is doubled to $2,000 per qualifying child under age 17 – with full refunds up to $1400 for families who owe little to no taxes.
- The mortgage-interest rate deduction has been reduced. New homebuyers can deduct mortgage interest only up to $750,000 (previously $1M).
- Estate taxes remain at 40% but the exemption level doubles to over $10M for individuals and $20M for joint filers.
- Medical expenses can be deducted if they exceed 7.5% of your adjusted gross income.
Corporations will see the following changes:
- A reduction in the corporate tax rate from 35 to 21%.
- Elimination of the Alternative Minimum Tax (AMT).
- A one-time tax on overseas earnings.
The largest tax overhaul in 30 years is being called a “big Christmas present” by the president, but the bill is being heavily criticized by Democrats, who are reporting that the middle class will suffer, while big corporations will reap its benefits. Although supporters of the bill have assured Americans that workers should see an increase in their paychecks as early as February, some are opposed to the fact that the tax cuts for individuals come with an expiration date of 2026, while the corporate tax reduction is permanent. GOP leaders say that they believe future legislators will continue the tax cuts beyond their expiration date.
The IRS has indicated that new tax tables may be available by February. However, payroll companies and employers alike are awaiting direction on whether or not new W-4 tax forms will be released based on the tax bill’s changes to personal exemptions. If that is the case, pay increases may be delayed if employees have to submit new W-4 forms.