Last week, House Republicans delivered their long-anticipated plan to overhaul the U.S. tax code.
When the $1.51 trillion Tax Cuts and Jobs Act was made public on Thursday, it immediately ignited debate.
Supporters, including President Donald Trump, say it would make America more attractive to businesses, allowing us to gain ground in the world business market while growing the economy. Critics say the plan would benefit corporations and the super-rich at the expense of small-business owners and the middle class.
The plan will likely be revised before it’s voted on, but here’s what it would mean for you in its current form.
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The Standard Deduction Would Double, but…
All but three deductions — mortgage interest, charitable contributions, and state and local property taxes — would be eliminated, The New York Times reports.
Those eliminations could mean fewer tax breaks, but they also make it possible to nearly double the standard deduction — the dollar amount those who don’t itemize their deductions can subtract from their taxable income.
The current standard deduction is $12,600 for married couples and $6,300 for single people.
But the standard deduction would rise to $24,000 for a married couple and $12,000 for singles.
In many cases, this would make up for the individual deductions that would no longer be available.
2. Parents Would Get More Tax Credits
On top of the increased standard deduction, the child tax credit would increase from $1,000 to $1,600 per child.
According to The Washington Post, the child tax credit is especially important to larger families that will not longer be able to claim personal exemptions. The plan also includes a new $300 credit for non-child dependents.
3. No More Deducting Your Student Loans
The changes for student loan borrowers won’t be as welcomed. The new tax plan proposes eliminating deductions of payments toward student loan interest, which about 30% of student loan borrowers claimed in 2015, CNBC reports.
Borrowers can currently deduct up to $2,500, though the amount you can deduct is gradually reduced once you make more than $65,000 if you’re single or a combined $130,000 or more if you’re married. Single people who make more than $80,000 and couples who make more than $160,000 can’t claim this benefit.
According to Forbes, the average benefit is $202.
4. Homeowner Deductions Would Stay, but With New Limits
Mortgage interest and property tax deductions won’t disappear, but the proposed bill would cap both, according to USA Today.
The property tax deduction would cap out at $10,000, and only home loans under $500,000 could deduct mortgage interest payments. That means one less deduction for high-earning taxpayers. But the change in the mortgage interest deduction would only impact newly purchased homes; those with existing mortgages would continue to deduct interest payments under the current terms.
The change is intended to provide relief for middle-income families while offsetting the lower rates corporations will pay, House Ways and Means Committee Chairman Kevin Brady told USA Today.
5. Corporations, Super-Rich and Middle Class Would See Tax Cuts
The tax rate for corporations would drop from 35% to 20% under the proposed plan.
The idea is that a tax break for companies will create more jobs in America because more multinational companies would do more business here rather than overseas, where corporate taxes are lower.
But critics believe the tax cut could mean a break that only benefits the rich who could exploit loopholes and end up paying a lower tax rate.
The tax plan would also consolidate the seven tax brackets, which currently range from 10% for the lowest earners to 39.6% for the highest earners, into four tax brackets: 12%, 25%, 35% and 39.6%.
The new brackets would mean a tax cut for families earning between $480,051 and $1 million that now pay in the 39.6% bracket.
Families that earn between $19,050 and $90,000 each year and paid between 15% and 25% in taxes under the current tax code would also see a tax break, because their tax obligation would drop to between 0% and 12%.
The poorest families — those that make less than $19,050 — would technically see their income tax percentage increase, but the higher standard deduction would mean their income wouldn’t be taxed.
If you want additional information on all the tax brackets, CNBC neatly breaks them down for single filers and married couples.
Desiree Stennett (@desi_stennett) is a staff writer at The Penny Hoarder.
This was originally published on The Penny Hoarder, one of the largest personal finance websites. We help millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. In 2016, Inc. 500 ranked The Penny Hoarder as the No. 1 fastest-growing private media company in the U.S.
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