The Republican-controlled U.S. House and Senate released a final version of a tax bill earlier this week that will result in overhauling of the individual and corporate related codes, after last-minute negotiations helped gain the holdout votes which had threatened its passage.
Sen. Marco Rubio, agreed to vote for the bill after the child tax credit was raised while Sen. Bob Corker of Tennessee said he has changed his mind about supporting the bill because the country is “better off with it” than without the bill.
With these votes, the bill is all set to be passed next week, allowing President Trump to sign it into law before Christmas.
Key Provisions of the Final Tax Bill
Related to Personal Tax
- Personal exemptions, have been removed which in 2017 helped reduce taxable income by $4,050 each for taxpayers, their spouses as well as dependent children.
- The standard deduction has been increased from $12,700 this year to $24,000 next year for couples who file filing jointly. In case of individuals, the amount for deduction is up to $12,000 from $6,350
- A new State and local tax deduction has been introduced which offers a maximum of $10,000 available for claims against property and income taxes combined or property and sales taxes.
- Tax brackets and rates have been revised across slabs for individuals and couples with the lowest slab being 10% and the highest 37%
- The deductible for Charitable contributions is available for those who itemize and the limitation of 50% of income has been increased to 60%
- Child tax credit is up from $1,000 to $2,000 which $1,400 of it refundable. The credit amount drops as family income stats to exceed $400,000.
- Mortgage interest is deductible for those who itemize but in cases of fresh mortgages for first and second homes, only interest for the initial $750,000 is allowed. Internet on home equity loans will no longer be deductible.
- Exemption for Estate tax has been double so only estates worth over $11 million will be taxed.
- From 2019 onwards , alimony it not deductible any longer by the payer in cases of new decrees, however payments would get excluded from the recipient’s income.
- People can deduct medical expenses, when it exceeds 7.5% of income in 2018 and 2019. The limit rises to 10%, in 2020.
- In Health insurance the Affordable Care Act mandate that required people to have insurance else face a fine from the IRS has been repealed.
The expected savings from this move is around $300 billion in the coming decade, which will get adjusted against the tax reductions. The repeal is likely to reduce the number of persons with insurance by nearly 13 million over 10 years according to Congressional Budget Office .
Related to Business Tax
- In case of Businesses income being reported on owners’ personal tax returns, a 20% deduction on the first $315,000 of joint income will be provided.
- Corporation will pay tax at the rate of 21% which comes into effect Jan. 1 and is permanent in nature.
- Ban on Arctic oil has been lifted on a part of the Arctic National Wildlife Refuge in Alaska
- The alternative minimum tax has been repealed for corporations but retained for individuals. For couples the exemption is up to $1 million.
- Any Losses incurred as a result of events like fires or floods is no longer deductible unless it gets covered by specific federal disaster declarations.
- A new tax of 4% tax has been introduced for schools that have endowments over $500,000 per paying student.
Other items like IRA and 401(k) accounts, Earned income tax credit And Affordable Care Act tax on investment income remains unchanged
The changes introduced for individual tax code are effective from Jan. 1. Taxpayers could still experience new rates in the next few months as the IRS has said it could release relevant information on the taxation process by February.
Most of the new changes for individuals will expire at the end of 2025, after which the old rates would come back in force unless a new law is passed.