On December 15, the Conference Committee—having reconciled and merged the differing House and Senate provisions into a single piece of legislation—released the “Tax Cuts and Jobs Act,” a sweeping tax reform proposal. Listed below is a quick reference of the Act’s key provisions affecting individuals, including the new rates and brackets, the increased standard deduction and elimination of personal exemptions, the repeal of the individual mandate under the Affordable Care Act, and a new deduction for pass-through income.
The “Tax Cuts and Jobs Act” has largely taken shape at a breakneck speed over a two-month period, passed by the House on November 16 and by the Senate on December 2. Republican leaders are now saying that they have the votes necessary for passage, and it is generally expected that the measure will be approved in both the House and Senate early this week and then make its way to President Trump for his anticipated signature shortly thereafter. It will be the largest major tax reform in over three decades.
We will provide more in-depth analysis of the business, individual and estate provisions once the Act is signed into law.
Individual Tax Rates
(Note: Individual rate cuts would begin in 2018 and expire after 2025.)
- Seven rates, starting at 10 percent and reaching 39.6 percent for incomes above $418,401 for singles and $470,701 for married, joint filers.
- Seven rates, starting at 10 percent and reaching 37 percent for incomes above $500,000 for singles and $600,000 for married, joint filers.
For joint filers:
- 10 percent: $0 to $19,050
- 12 percent: $19,050 to $77,400
- 22 percent: $77,400 to $165,000
- 24 percent: $165,000 to $315,000
- 32 percent: $315,000 to $400,000
- 35 percent: $400,000 to $600,000
- 37 percent: $600,000 and above
For single filers:
- 10 percent: $0 to $9,525
- 12 percent: $9,525 to $38,700
- 22 percent: $38,700 to $82,500
- 24 percent: $82,500 to $157,500
- 32 percent: $157,500 to $200,000
- 35 percent: $200,000 to $500,000
- 37 percent: $500,000 and above
Corporate Tax Rate
Current law: 35 percent
Proposed: 21 percent, beginning in 2018.
Corporate Alternative Minimum Tax
Current law: Applies a 20 percent rate as part of a parallel tax system that limits tax benefits to prevent large-scale tax avoidance. Companies must calculate their ordinary tax and AMT tax, and pay whichever is higher.
Individual Alternative Minimum Tax
Current law: Individual AMT can apply after exemption level of $54,300 for singles and $84,500 for married, joint filers, and the exemptions phase out at higher incomes.
Proposed: Increase the exemption to $70,300 for singles and $109,400 for joint filers. Increase the phase-out threshold to $500,000 for singles and $1 million for joint filers. The higher limits would expire on Jan. 1, 2026.
Current law: Businesses must take depreciation, spreading the recognition of their equipment costs for tax purposes over several years.
Proposed: Businesses could fully and immediately deduct the cost of certain equipment purchased after Sept. 27, 2017 and before Jan. 1, 2023. After that, the percentage of cost that could be immediately deducted would gradually phase down.
Current law: The U.S. taxes multinationals on their global earnings at the corporate rate of 35 percent, but allows them to defer taxes on those foreign earnings until they bring them back to the U.S., or “repatriate” them.
Proposed: U.S. companies’ overseas income held as cash would be subject to a 15.5 percent rate, while non-cash holdings would face an 8 percent rate.
Current law: Pass-through businesses, which include partnerships, limited liability companies, S corporations and sole proprietorships, pass their income to their owners, who pay tax at their individual rates.
Proposed: Owners could apply a 20 percent deduction to their business income, subject to limits that would begin at $315,000 for married couples (or half that for single taxpayers).
Obamacare Individual Mandate
Current law: An individual who fails to buy health insurance must pay penalties of $695 (higher for families) or 2.5 percent of their household income — whichever is higher, but capped at the national average cost of the most basic, low-premium, high-deductible plan.
Proposed: Repeal the penalties.
Standard Deduction and Personal Exemptions
Current law: $6,350 standard deduction for single taxpayers and $12,700 for married couples, filing jointly. Personal exemptions of $4,050 allowed for each family member.
Proposed: $12,000 standard deduction for single taxpayers and $24,000 for married couples, filing jointly. Personal exemptions repealed.
Individual State and Local Tax Deductions
Current law: Individuals can deduct the state and local taxes they pay, but the value is subject to certain limits for high earners.
Proposed: Individuals can deduct no more than $10,000 worth of the deductions, which could include a combination of property taxes and either sales or income taxes.
Mortgage Interest Deduction
Current law: Deductible mortgage interest is capped at loans of $1 million.
Proposed: Deductible mortgage interest for new purchases of first or second homes would be capped at loans of $750,000 starting on Jan. 1, 2018.
Medical Expense Deduction
Current law: Qualified medical expenses that exceed 10 percent of the taxpayer’s adjusted gross income are deductible.
Proposed: Reduce the threshold to 7.5 percent of AGI for 2017 and 2018.
Child Tax Credit
Current law: A $1,000 credit for each child under 17. The credit begins phasing out for couples earning more than $110,000. The credit is at least partially refundable to qualified taxpayers who earned more than $3,000.
Proposed: Double the credit to $2,000 and provide it for each child under 18 through 2024. Raise the phase-out amount to $400,000, and cap the refundable portion at $1,400 in 2018.
Current law: Applies a 40 percent levy on estates worth more than $5.49 million for individuals and $10.98 million for couples.
Proposed: Double the thresholds so the levy applies to fewer estates. The higher thresholds would sunset in 2026.
Please contact your Warady & Davis LLP advisor at (847) 267-9600 to discuss your current situation and any steps that can be taken before year-end.