When Republicans first unveiled their plans for a new tax plan, critics tore it apart. They said the GOP plan eliminated some valuable credits and deductions that would have a severe impact on low- to middle-income taxpayers.
The bill has passed in both the House and the Senate. President Trump will likely sign the bill by the end of the year and it will go into effect in 2018. Now that the bill is becoming a reality, it’s important to understand just how it will affect you and your finances.
6 ways the bill will impact your finances
The final bill looks very different than previous iterations. In some cases, it may even be beneficial to your bottom line. Here’s what you need to know about the new tax plan.
1. Lowers tax bracket rates
The bill keeps the same number of tax brackets — seven — but reduces the rate for each one. Under the GOP tax plan, you could end up owing less on your tax bill. The brackets are as follows:
- 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 filing jointly)
- 22% (over $38,700 to $82,500; over $77,400 to $165,000 for couples filing jointly)
- 24% (over $82,500 to $157,500; over $165,000 to $315,000 for couples filing jointly)
- 32% (over $157,500 to $200,000; over $315,000 to $400,000 for couples filing jointly)
- 35% (over $200,000 to $500,000; over $400,000 to $600,000 for couples filing jointly)
- 37% (over $500,000; over $600,000 for couples filing jointly)
2. Increases the standard deduction
Today, you have the choice of itemizing your tax deductions or taking the standard deduction of $6,350 for individuals or $12,700 for couples filing a joint return.The new tax plan aims to simplify returns and reduce the number of taxpayers who itemize deductions by nearly doubling the standard deduction. Republicans aim to increase it to $12,000 for individuals and $24,000 for married couples.
When filing your return, this change could make things easier. You won’t have to worry about keeping track of every little deduction or maintaining receipts; you’re able to claim the standard deduction and save money.
3. Expands the child tax credit
Depending on your income and the ages of your children, you could qualify for a valuable tax deduction. Right now, you can get a tax credit valued up to $1,000 per child. Even better, the tax credit is refundable. That means if the credit reduces your tax bill to zero, you can get a portion of the remaining balance in cash. Under the current tax rules, the credit phases out for people with incomes over $55,000 for individuals or $110,000 for couples.
The GOP tax plan not only increases the tax credit value to $2,000, but it also increases the income thresholds to $75,000 and $150,000, respectively. That could reduce how much you owe at tax time.
4. Preserves some popular deductions
Many critics denounced the previous versions of the tax plan because it did away with popular deductions, such as a deduction for school supplies for teachers and student loan interest. However, those deductions would remain in place under the rules released on December 17.
5. Eliminates the estate tax for most
While the new bill does not end the estate tax altogether like previous versions did, it does eliminate it for most people. Under the new rules, the money exempt from estate tax would double from $5.49 million to over $10 million. Although most of us will never see that kind of money, it’s a notable change that affects the wealthiest in the country.
6. Does away with the Affordable Care Act mandate
Today, going without insurance can be costly. Under the Affordable Care Act, the government can charge you a penalty of $695 per person if you don’t have an adequate policy.
The Republican tax plan would eliminate the mandate that requires you to carry insurance and end the penalty you pay now.
You’ll still be able to get insurance through the Health Insurance Marketplace, but you might not qualify for a subsidy and you may pay a higher premium.
What to Expect at Tax Time
If these changes go into effect, you could see a reduction in your tax bill and a boost to your refund. To find out how the tax plan will affect you specifically, check out the New York Times’ calculator.
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