Here’s How the Trump Tax Plan Could Affect You

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Update: Afters months of speculation, President Trump and House Republicans have unveiled their long-awaited tax bill, “Tax Cuts and Jobs Act.” The bill calls for sweeping changes to current tax law, including reducing the number of tax brackets from seven to four. If it passes, how would the Trump tax plan affect you? It depends on your income, your current filing status and the deductions you take. Take a look at our guide to the main features of the Trump tax plan. 

Trump Tax Plan Calls for 4 Tax Brackets

Trump’s tax plan calls for cutting the number of tax brackets in the federal income tax system from seven to four. Those four brackets would have rates of 12%, 25%, 35% and 39.6%.

It’s worth noting that the lowest proposed tax rate of 12% is higher than the current lowest tax rate (10%). The highest proposed tax rate will remain the same (39.6%) but would apply to single taxpayers with an income threshold of $500,000 and to married couples earning $1 million. Under the current income tax brackets, the 39.6% rate kicks in for single taxpayers earning $418,401+ and for married couples earning $470,701+.

This is how Trump’s tax plan stacks up against current federal income tax brackets:

Single FilersMarried Filing JointlyTax Rate
$0 – $9,325$0 – $18,65010%
$9,326 – $37,950$18,651 – $75,90015%
$37,951 – $91,900$75,901 – $153,10025%
$91,901 – $191,650$153,101 – $233,35028%
$191,651 – $416,700$233,351 – $416,70033%
$416,701 – $418,400$416,701 – $470,70035%
Single FilersMarried Filing JointlyTax Rate
$0 – $45,000$0 – $90,00012%
$45,001 – $200,000$90,001 – $260,00025%
$200,001 – $500,000$260,001 – $1,000,00035%

Wondering what the proposed income tax brackets will mean for you? This article takes a deeper look at how the Trump tax plan will affect families in 20 big cities across the country.

Trump Tax Plan Calls for Increasing the Standard Deduction

There are deductions to consider as well. Changes could be coming for taxpayers who take the standard deduction and for those who itemize. The Trump tax plan calls for increasing the standard deduction to $12,000 (for individuals) and $24,000 (for married couples filing jointly).

Currently the individual standard deduction is $6,350 for individuals and $12,700 for married couples. In other words the standard deduction will double under the Trump tax plan.

Single FilersMarried Filing Jointly
Single FilersMarried Filing Jointly

Trump Tax Plan Calls for Big Changes to State and Local Tax Deductions (SALT)

Back in September, Trump released an initial plan that called for eliminating almost all itemized deductions, including state and local tax deductions (SALT), but keeping those for charitable deductions and mortgage interest. Currently, taxpayers who itemize can write off their state and local income, property and general sales tax payments on their federal tax return. This effectively prevents double taxation.

The newly released tax bill proposes major changes to state and local tax deductions. Under Trump’s plan, taxpayers would still be able to deduct state and local property taxes, though this will be capped at $10,000. However, they will no longer be able to deduct state and local income and sales taxes. This is one of the most hotly debated aspects of the plan and is expected to be unpopular among Republicans in high-tax states.

Trump Tax Plan Calls for Changes to the Mortgage Interest Deduction

Currently, homeowners who itemize their taxes can deduct their mortgage interest payments on mortgages up to $1 million. Trump’s tax plan calls for limiting the deduction to mortgages up to $500,000. However it is retroactive, meaning that current homeowners will not be affected but for future buyers it will be capped at $500,000.

The New York Times described this proposal as one of the “biggest flash points” on the plan and predicted it would be one of the more contentious moves.

Trump Tax Plan Calls for Increasing the Child Care Tax Credit

The current child care tax credit is up to $1,000 per child. It’s a credit as opposed to a deduction. This means that it reduces your tax bill on a dollar-to-dollar basis by up to $1,000 per child. Say for example, you owe the IRS $4,000 and are eligible for the full $1,000 credit, you would now owe $3,000.

The Trump tax plan calls for increasing this credit to $1,600, as well as adding a (non-refundable) $300 credit for non-child dependents for five years.

Trump Tax Plan Calls for Eliminating the Estate Tax

The plan calls for increasing the estate tax deduction from $5.49 million to $11 million. This means wealthy families can transfer more money tax-free to their heirs.

Furthermore, Trump’s tax plan also proposes eliminating the estate tax entirely after six years (by 2024). This would mean high-net-worth families could more easily transfer their assets to their heirs. Under current law, the estate tax (40%) applies when multimillionaires transfer property to heirs.

Trump Tax Plan Calls for Lowering Corporate Tax Rate

The current corporate tax rate’s 35%. Trump originally went on the record saying he hoped it would be slashed to 15%.

However the Trump tax plan call for a 20% corporate tax rate (down from 35%).

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