Senate Passes Tax Plan: Here’s What You Need to Know

tax bill

Early Saturday morning, the Senate passed a massive tax reform bill. The effects of the tax bill will be widespread, affecting everyone from low-income taxpayers to large corporations.

The Republican tax plan was not passed without controversy. Lawmakers received another version of the bill, which was significantly different than the plan that passed through Senate panels last month, just hours before the vote. Senators voted 51-49 to pass the bill, and the votes were true to party lines.

Senate Democrats decried the last minute changes, saying they did not have enough time to read the 469-page tax bill.

“[The last-minute changes are] a process and a product that no one can be proud of and everyone should be ashamed of,” said Senator Chuck Schumer, Democrat minority leader, on the Senate floor before the voting began.

Despite the protests of Democrats — and one lone Republican, Senator Bob Corker of Tennessee — the bill will move forward and may end up on President Trump’s desk by Christmas.

Here is what you need to know about the changes to the bill and what steps are ahead for the tax plan.

6 Major changes to the GOP tax plan

The Senate made several changes to the House bill to address concerns from some Republican Senators. The Senate tax plan:

1. Reinstates the medical expense deduction for lower-income individuals: Under today’s tax rules, individuals who itemize their deductions can deduct medical expenses if they cost more than 10 percent of their gross income. The House bill eliminated this deduction, but due to pressure from some Republicans, the Senate reinstates it and even temporarily lowers the threshold to 7.5 percent of taxpayers’ gross income.

2. Local and state property tax deductions: The Senate plan adds back in local and state property tax deductions up to $10,000.

3. Creates seven tax brackets: The House bill streamlined tax brackets, reducing the number from seven to four. Instead, the Senate bill retains the number of brackets, but with lower rates and higher income thresholds.

4. Expands child tax credit: Under the House bill, the child tax credit was $1,600. The Senate’s version would raise that amount to $2,000; the child’s age limit would also be temporarily increased to 18 through 2025. The bill also increases the income threshold, so more people would qualify for the credit before it phases out. However, the second $1,000 is not refundable, which means lower-income families who don’t end up owing federal taxes will not be able to claim it.

5. Increases teacher deduction: Although the House bill eliminated the teacher deduction — which currently allows teachers to deduct up to $250 for classroom supplies — the Senate bill doubles the deduction to $500.

6. Doubles estate tax levels: The estate tax has been an issue of serious contention. The House bill completely eliminated estate taxes. The Senate bill preserves them but doubles the exemption from $5 million for individuals to $10 million.

These changes will add several billion to the cost of the bill. To compensate for the additional cost, Republicans reeled back some tax cuts and increased a new tax on assets held by overseas American multinational companies.

The Joint Committee on Taxation, a nonpartisan committee within the United States Congress, reports that the bill will add over $1 trillion to the nation’s deficit. However, the committee notes that the deficit number does not account for economic growth that may come from some of the changes.

What this bill means for you

Depending on your income, the tax plan could result in a larger tax bill for you. A report issued by the Joint Committee shows that every income group under $75,000 will see some form of tax increase. Those over that threshold could experience a tax break.

That change is because there are lower rates and higher income thresholds within the tax brackets in the Senate bill. For middle-class and upper-middle-class families, the tax plan could save them money.

For example, a couple that earns $100,000 and files a joint return would be in the 25 percent tax bracket; their tax liability would be $11,278 under today’s tax rules. However, they would fall into the 22 percent bracket in the new tax rules, and their liability would be just $8,739. They’d save approximately $2,500 under the new bill.

Current Tax Rules
2017 Brackets Single Filers Joint Filers
10% up to $9,325 up to $18,650
15% $9,325-$37,950 $18,650-$75,900
25% $37,950-$91,900 $75,900-$153,100
28% $91,900-$191,650 $153,100-$233,350
33% $191,650-$416,700 $233,350-$416,700
35% $416,700-$418,000 $416,700-$470,700
39.6% $418,000 and up $470,700 and up
GOP Tax Plan Rules
2017 Brackets Single Filers Joint Filers
10% up to $9,525 up to $19,050
12% $9,525-$38,700 $19,050-$77,400
22% $38,700-$70,000 $77,400-$140,000
24% $70,000-$160,000 $140,000-$320,000
32% $160,000-$200,000 $320,000-$400,000
35% $200,000-$500,000 $400,000- $1 Mill.
38.5% $500,000 and up $1 Mill. and up

The standard deduction also changes under the Republican tax reform bill. Today, the standard deduction is $6,350 for single filers and $12,700 for those married filing jointly. The Senate bill would nearly double that amount to $12,000 for single filers and $24,000 for those filing a joint return. This change could result in lower tax bills for some, and fewer itemized deductions.

“Generally speaking, if you are a taxpayer that takes the standard deduction currently … good chances are you get a tax cut,” said Scott Greenberg, a senior analyst at the Tax Foundation, in an interview with ABC News. “Taxpayers with large amounts of itemized deductions, some of them could see a modest tax increase.”

You can use this calculator from MarketWatch to find out how the Senate’s tax plan will affect your bill in the upcoming tax season.

Next steps for tax reform

The Senate and House tax reform bills significantly differ in the treatment of the health insurance mandate penalties, deductions, and the number of tax brackets.

On Monday, the House will vote to send the bill to a conference committee. Later in the week, the Senate will vote to do the same. Then, the two versions will be reconciled into one bill before going to President Trump’s desk for his approval and signature by the end of the year.

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Published in News, Taxes