The Senate Passed the Tax Bill and This is What We Know

By Eric Olsen
The Senate Passed the Tax Bill and This is What We Know

As of the wee hours of the morning last Saturday, the Senate just passed tax reform. While we are all still anxiously waiting to see what will end up on President Trumps desk, let’s review some of the information that we have up to this point.

1. It’s all “temporary”

Under the bill that was just passed, all changes, with the exception of the corporate tax rate, are set to expire on December 31, 2025. At that point in time, (almost) everything will revert back to their current forms. Now, you may think that this is just kicking the can down the road, however it was necessary to comply with the Byrd Rule, which is how the legislation passed with only 51 votes.

2. The bracket changes

Our current income tax system utilizes seven brackets, however the House bill which was passed had only four brackets proposed. However, this is marred with the Senate bill reverting back to seven brackets again. Needless to say, no one is quite sure how many brackets there will be, and we probably won’t know until the reconciled bill hits President Trumps desk.

What we do know are the possibilities for the proposed tax rates for each of the plans.

Here is what they are for individuals:

Income LevelCurrent RateHouse RateSenate Rate
$0 - $9,52510%12%10%
$9,525 - $38,70015%12%12%
$60,000 - $93,70025%25%25%
$195,450 - $200,00033%25%32.5%
$200,000 - $424,95033%35%35%
$426,700 - $500,00039.6%35%35%
> $500,00039.6%39.6%38.5%

And here is what they are for married filing jointly:

Income LevelCurrent RateHouse RateSenate Rate
$0 - $19,05010%12%10%
$90,000 - $120,00025%25%22.5%
$120,000 - $156,15025%25%25%
$290,000 - $390,00033%35%32.5%
$390,000 - $424,95033%35%35%
> $1,000,00039.6%39.6%38.5%

While these are subject to change, we can safely assume that our ending rates will be somewhere in these ranges.

3. Hello Standard Deduction…

Currently the standard deduction sits at $6,350 for single taxpayers and $12,700 for married taxpayers. Under both the House and the Senate bills the standard deduction is raised to $12,000 for single taxpayers and $24,000 if married.

These changes allow for more simplicity for taxpayers and preparers since 90% of taxpayers will most likely be claiming these deductions.

4. …Goodbye Itemized Deductions

With the standard deductions increasing, it was only foreseeable to see many of the popular itemized deductions going away. While we don’t have the full list of what will stay, the following deductions are most likely going to be eliminated:

• State and Local income taxes • Personal casualty losses (except for federal declared disaster areas) • Unreimbursed employee expenses • Tax preparation fees • Moving expenses

5. Other features

• Corporate tax rate down from 35%-20% (this is permanent) • Estate tax exemption amount is increased