Categories: Taxes and Retirement

Final House and Senate GOP Tax Reform Bill For Trump Tax Changes in 2018 and 2019

House and Senate Republican (GOP) lawmakers have passed a reconciled/final bill for President Trumps Tax Reform measures under the Tax Cuts and Jobs Act. These proposals are aimed at building on Trump’s promises to streamline the US personal and corporate tax code. The plans promise tax savings in 2018 of nearly $1,500 to $2,500 for an average four person household. However most critics have said that the proposed Trump/GOP tax reforms will benefit the rich and large corporations far more than lower and middle-class families.

Via the table below I have contrasted the changes of the two versions of the GOP bill from the House and Senate with the final tax reform bill.

Category House Republicans Bill Senate Republicans Bill Reconciled Final Bill for Trump
Tax Brackets & Rates
(see the updated 2018 tax brackets under the final/reconciled bill)
Go from seven to four tax rates and brackets: 12%, 25%, 35% and 39.6%. For single filers, corresponding income brackets will be up to $45,000, $200,000, $500,000 and $500,000+. For married people, those brackets will be up to $90,000, up to $260,000, up to $1 million and over $1 million. Bill also includes a 6% surtax or "bubble rate" that applies to those with AGI over $1 million ($1.2 million for couples)
Keeps seven individual income tax brackets per current tax model (vs 4 in House tax plan), but the 12% bracket would replace 15% bracket. Top rate cut to 38.5% vs 39.6% currently in place. Individual tax cuts would sunset after 2025 Maintains 7 individual tax rate brackets - 10%, 12%, 22%, 24%, 32%, 35% and 37 % - which will start in tax year 2018 and expire by the end of 2025 (like bush-era tax cuts). The top rate is a 2.6% fall from the current top rate of 39.6% and raises income thresholds to over $500,000/$600,000 (single/married)
Standard Deduction and Personal Exemption Nearly double standard deductions to $24,000/$12,000 (married/single filers). ; Elimination of personal exemption Same approach as house to nearly double standard deduction thresholds. Single parents would get a $18,000 standard deduction. Personal exemption eliminated. These would only be in place till 2025, after which these deductions and exemptions would return to current levels Standard deductions doubled to $24,000/$12,000 (married/single filers). Elimination of personal exemption until 2025
Child Tax Credit (CTC) Raise to $1,600 from current $1,000. Increases income thresholds ($115,000/$230,000) for the CTC eligibility to allow more families to claim the credit. Add a new $300 family tax credit for each parent and non-child dependent. Increase CTC to $2,000. This is much higher than House tax plan bill. Offers a $300 per year “flexibility credit,” equivalent to the family tax credit The CTC is key provision for selling tax reform to middle to lower income families. Senate provisions to double to $2,000 per child from $1,000 were adopted. A $500 credit was also added for non-child dependents. However will have income and deductibility restrictions whereby it would only be refundable up to $1,400 and start to phase out at $200,000/$400,000 in income. The higher CTC would expire by 2025.
Eliminated Itemized Credits and Deductions State & local income and sales taxes (SALT) deduction, Medical & long-term care expenses, Moving expenses, Alimony payments, Tax Preparer fees, Student loan interest and Teacher classroom expenses Senate plan was modified to allow up to $10,000 in state and local property taxes (SALT) deductions on tax payer's federal IRS returns Senate provision adopted to limit state and local property taxes (SALT) deductions to $10,000 in on tax payer's federal IRS returns. Final bill also has several provisions that eliminate a slew of tax breaks such as deductions for moving expenses and tax preparation costs
Reduced Itemized Credits and Deductions Reducing the following deductions: Mortgage interest (limit to $500K loans vs current $1M limit), Property taxes (limited to $10,000) Senate plan would keep mortgage interest deduction for loans up to $1,000,000 Mortgage interest deduction for existing homeowners will remain in place ($1 Million). For new homes, taxpayers will only be able to deduct interest on up to $750,000 in mortgage debt
Kept Itemized Credits and Deductions (current) Keeps Charitable contribution deduction (qualifying categories to be streamlined) and reinstated Adoption tax credit (worth up to $13,750) which was originally cut Keeps child and dependent care credit, keeps charitable donations deductions and Medical & long-term care expenses deductions (lowers threshold back to 7.5%) and education relief deduction for graduate students Retains tax breaks for charitable donations, child and dependent care credit, education relief, and Medical & long-term care expenses deductions (lowers threshold back to 7.5% for next 2 years, before going back to 10% from 2020)
Earned Income Tax Credit (EITC) No change and preserved at (current levels) No change to the EITC credit and preserved as is EITC will remain unchanged
401(k) Retirement Plans No Changes or impacts (see 2017 and 2018 plan limits) No changes or impacts to current levels. Also the final Senate bill scraps an earlier proposal that looked to eliminate the pre-tax retirement account catch-up contributions for those over 50 No change to retirement plan thresholds or tax deductibility
Estate and Death Tax Double the estate or death tax exemption to $11 million. This tax would then be fully phased out and eliminated after six years (2024) Doubles the exemption for the estate tax but does not fully eliminate it like House bill proposal Doubles the exemption for the estate tax per Senate provision, but estate (or death) tax remains in place
Alternative Minimum Tax (AMT) Eliminated entirely from 2018 Following last minute negotiations to pass the Senate bill the AMT will be partially retained via raising the amount income exempt from AMT (vs a full repeal until 2026). The idea behind this is to address vote optics and ensure that business wealthy individuals pay some level of AMT Senate provision generally adopted by eliminating the corporate alternative minimum tax, but keeps individual AMT. The individual AMT income exemption threshold will be raised to reduce the number of tax payers subject to this tax
Corporate Taxes Permanently cut the federal corporate tax rate to 20 percent (from 35 percent) from 2018. Immediate write-off for new equipment and preserves R&D tax credit Same as house and will stay in place permanently. But will delay the tax cut until 2019. Similar to House plan with regard to treatment of new equipment write-off and R&D credit Cuts corporate tax rate to 21% from the current 35% rate. Change would take effect from 2018
Small Business Taxes Lower the maximum rate to 25% on small business income for pass through like entities (e.g. sole proprietorships, partnerships and S-corporations).

Provides a new small business tax rate of 9 percent for businesses earning less than $75,000 in income. The benefit is phased out as taxable income exceeds $150,000 and fully phased out at $225,000.
Will reduce the burden on pass-through businesses by adding a small business deduction equivalent to 23 percent of pass-through income (this was originally 17.4%, but raise to lower impact on deficit) 20% business income deduction for the first $315,000 in income earned by pass-through businesses. The first $75,000 of pass through income would be subject to an 8% tax rate
Global & International Taxes Remove double taxing of foreign income, provide a lower one-time repatriation tax rate for returned overseas/offshore corporate funds (Illiquid assets would be taxed at a 7% rate, liquid assets like cash which would be taxed at a 17% rate). Any incentives that promote overseas job creation will be removed to support US job creators Also eliminates global double taxation. Will provide a one time repatriation tax to eliminate “lock-out effect” by making it simpler and less onerous for American multinationals to repatriate bring foreign earnings Eliminates double taxation of foreign income and moves US to a territorial system in line with other western countries. Also has a higher one time repatriation tax rate than Senate and House bills where companies would pay 15.5% on cash assets and 8% on non-cash assets
Capital Gains No change to current rules No changes to personal CGT. But Senate has now repealed provision that taxed employee stock options when they vested instead of when they were exercised No changes to current CGT structure. Exclude controversial first in first out stock sales change to appease investment groups who strongly opposed this rule
Social Security No change to tax treatment of SSI income No changes likely No changes to treatment of social security income
Obamacare Penalty No change to current Obamacare penalties (individual mandate) for 2017 or 2018 Includes provision to repeal Obamacare’s individual mandate (health care penalty) Incorporates Senate provision for individual mandate repeal beginning in 2019. Would still be in effect for nein the final bill. Saves $330 billion, but CBO estimates 13 million Americans would be uninsured in 10 years as a result

Most of the changes in the tax bill will come into effect for the 2018 tax year. Please share this article and connect via Facebook or Twitter to get the latest updates and news related to Trump and GOP tax reform proposals.