Tax cuts for Christmas? What you’re getting and when you’re getting it
As the Tax Cuts and Jobs Act moved from the U.S. House of Representatives and onward this week, the view from outside of Washington was tense.
The bill passed the House on Tuesday, only for the Senate to put it through a so-called “Byrd Bath.” This sparingly-used Senate procedure requires policy makers to verify bill provisions create budget impact.
In the end, Byrd proceedings stripped the bill of only minor provisions, such as a tax-free savings account for homeschooling expenses.
The Senate sent the bill back to the house for a vote on Wednesday, where it passed once more along party lines. The final vote was 227-203.
Only 12 U.S. House Republicans voted no on the bill.
The bill next went to the desk of President Donald Trump, where he signed it into law on Dec. 22.
This passage makes for the nation’s first tax overhaul in 31 years. But, now that it’s official, what can we expect from it? Moreover, when should we expect it?
Most changes will not be noticed until individuals file their 2018 taxes. This year’s taxes will fall under the provisions of the previous tax code.
Some changes could become apparent as early as February, as employers update payroll procedures in accordance to new policies.
For individuals, new policies include:
- Tax brackets of 10, 12, 22, 24, 32, 35 and 37 percent (previously 10, 15, 25, 28, 33, 35 percent and 39.6 percent).
- Standard deductions of $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers (previously $6,500, $9,550, and $13,000 respectively).
- An increased child tax credit, now $2,000.
- The removal of the individual mandate, which penalized individuals for not enrolling in health insurance.
- Preserved tax-free tuition assistance, tuition waivers, and student loan interest deductions
- The removal of tax preparation deductions
Before the bill passed, Trump called the Tax Cuts and Jobs act “a giant tax cut for Christmas.”
Unlike most Christmas gifts, this one is coming with limited shelf life. Most changes for individuals taxpayers expire at the end of 2025.
For businesses, the bill:
- Institutes a flat tax for C corporations of 21 percent. Previously, C corporations were taxed according to a multi-bracket corporate income tax structure.
- Taxes pass-through businesses according to individual tax rates, but allows these business owners to deduct 20 percent of their net income. This deduction expires at the end of 2025.
- Phases out income deductions for pass-through businesses in the service industry. Deductions decrease for service businesses with net incomes greater than $315,000 (married filing jointly) or $157,500 (single filers), and disappear for those with incomes greater than $415,000/$207,500.
Pass-through businesses include sole proprietorships, limited liability companies, partnerships, and S corporations.
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