The final SENATE BILL differs from the tax bill passed by the HOUSE and those differences will now be reconciled and then a final piece of legislation will be voted on by both chambers.
Here are some key points how the SENATE BILL would affect individuals and businesses, and how it differs from the HOUSE legislation.
FOR INDIVIDUALS
1. Tax Rates – Currently there are seven brackets in the individual tax code – 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The Senate Bill calls for seven brackets but changes the rates on taxable income to the following whereas the House bill only calls for four brackets – 12%, 25%, 35% and 39.6%.
- 10% (income up to $9,525 for individuals; up to $19,050 for married couples filing jointly)
- 12% (over $9,525 to $38,700; over $19,050 to $77,400 for couples)
- 22% (over $38,700 to $70,000; over $77,400 to $140,000 for couples)
- 24% (over $70,000 to $160,000; over $140,000 to $320,000 for couples)
- 32% (over $160,000 to $200,000; over $320,000 to $400,000 for couples)
- 35% (over $200,000 to $500,000; over $400,000 to $1 million for couples
- 38.5% (over $500,000; over $1 million for couples)
2. Personal Exemptions –are eliminated. Currently taxpayers may claim a $4,050 personal exemption for themselves, their spouse and each of their dependents. However, the Senate and House Bills eliminate that option.
3. Standard Deduction – is nearly doubled. The Senate and House Bills nearly double the standard deduction. The Senate bill increases the deduction for Single taxpayers to $12,000 from $6,350 currently; and it also raises it for Married Jointly taxpayers to $24,000 from $12,700.
4. State and Local income tax deduction – limits property taxes. Currently taxpayers itemizing may deduct their property taxes as well as their state and local income or sales taxes. However, the original Senate Bill called for a full repeal of the SALT deduction. But it was amended to preserve an itemized deduction for property taxes up to $10,000, which is identical to the House Bill.
5. Mortgage Interest Deduction – Currently a taxpayer is allowed to claim a deduction for interest paid on mortgage debt up to $1 million. The Senate Bill will allow the cap to stay at the $1 million debt amount. However, the House Bill will limit the amount at $500,000 for new mortgages. In addition, the Senate Bill disallows interest deductions for home equity loans.
6. Child Tax Credit: – is expanded by the Senate Bill.
a. The Senate Bill increases the child tax credit to $2,000 per child, which is an increase compared to the House Bill’s proposed amount of $1,600. The first $1,000 is refundable and the additional $1,000 wouldn’t be refundable;
b. changes the age limit requirement to under 18 instead of the current under-17 requirement;
c. increases the income thresholds where the credit starts to phase out to $500,000 for married taxpayers, up from the current threshold of $110,000;
d. and taxpayers who have non-qualified children may be able to claim a new $500 nonrefundable credit per non-qualified child dependent. While under the House Bill, there would be a new $300 per person credit for parents and dependents over 17.
7. Alternative Minimum Tax – is preserved: The original Senate Bill and House Bill, would repeal the AMT. However, the final revision of the Senate Bill now keeps the AMT in place but raises the income amount exempt from AMT. The Senate still needs to provide details.
8. Estate tax – has proposed changes. The Senate Bill proposes to double the exemption levels which are currently 5.49 million for individuals and $10.98 million for married taxpayers. However the House Bill has proposed to repeal the Estate Tax.
9. Teacher Deduction – is increased. Teachers who buy their own supplies for the classroom may deduct up to $250 currently. The Senate Bill doubles that amount to $500. But the House Bill eliminates the deduction.
10. Medical Expense Deduction – Currently taxpayer’s itemizing may deduct their medical/dental/Rx and etc. out of pocket expenses subject to limitations. The House bill gets rid of the entire deduction but the Senate Bill not only keeps it but temporarily lowers the limitation for tax years 2017 and 2018.
11. Health Insurance Mandate– the repeal of the Buy Mandate.
FOR BUSINESSES
1. Corporate Tax Rate Cut -The Senate and House Bills would lower the corporate tax rate to 20% from the current 35% rate. However, under the Senate Bill the 20% rate would not take effect until year 2019.
2. Write off of New Equipment – Senate Bill would allowed businesses to immediately and fully expense new equipment for five years, then phases the provision out by 20 percentage points per year thereafter. The House provision limits it to only five years.
3. Pass-through business income – Both the House and Senate Bills lower taxes on the business portion of a taxpayer’s pass-through income.
a. House Bill drops the top income tax rate to 25% from the current 39.6%, while prohibiting anyone providing professional services (e.g., accountants) from taking advantage of the lower rate. It also phases in a lower rate of 9% for businesses that earn less than $75,000.
b. Senate bill lowers taxes on a taxpayers pass-through income by letting them deduct 23% of their income, up from the original 17.4%. However, the 23% deduction would be prohibited for anyone in a service business — EXCEPT those with taxable incomes under $500,000 if a married taxpayer and $250,000 for an single taxpayer;
c. to prevent owners in a pass-through from re-characterizing their wage income as business profits to get the benefit of the pass-through deduction, the Senate Bill would automatically limit the deduction to half of the W-2 wages of the pass-through entity or its share to the individual taxpayer;
d. however, the W-2 rule does not apply, if the taxpayer’s taxable income totals under $500,000 for married taxpayers and under $250,000 for single taxpayers.
4. U.S. multinationals are taxed – Currently U.S. companies pay the USA tax on all their profits, regardless of where the income is earned. They’re allowed to defer paying U.S. tax on their foreign profits until they bring the money home. The Senate Bill would allow to move the USA
a. to a territorial system;
b. additionally it includes a number of anti-abuse provisions to prevent corporations with foreign profits from gaming the system;
c. also it would require companies to pay a one-time low tax rate on their existing overseas profits — 14.5% on cash assets and 7.5% on non-cash assets (e.g., equipment abroad in which profits were invested), slightly higher than the 14% and 7% rates in the House Bill.
