Search This Blog

Thursday, November 30, 2017

Tax Reform Links and Examples

UPDATED 12/22/17: Tax reform went from legislative text from the House Ways and Means on 11/2/17 to a signed bill on 12/22/17.  The House Ways and Means Committee introduced its bill - H.R. 1, on November 2 and the House passed it on November 16. The Senate Finance Committee released its proposal on November 9 and passed it on November 16. Late on 12/1/17, the Senate passed a bill that made numerous amendments to the bill passed by the Senate (see the list of amendments in this JCT document). The House and Senate held a conference committee on 12/13/17 and did some behind the scene discussion to be sure they have the votes to pass. Late on Friday 12/15/17, the conference bill/report was released (1087 pages). On 12/20/17, House and Senate approved the bill and it was renamed to ‘‘an Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.’’ President Trump signed the bill on 12/22 and it became Public Law 115-97 (12/22/17).

Following are links to the key documents on the bills and Joint Committee on Taxation analysis. I also show examples of how two different families fare under the House and Senate Finance Committee bills (final bill is a bit more favorable).  Please note that there are many variations possible of how H.R. 1 affects individuals depending on how many children a family has and their ages, the types of itemized deductions they have, and their income level and its nature.

Links in chronological order:
Note: Due to the "Byrd rule" which requires budget reconciliation legislation to only deal with revenue, an amendment was made in the Senate late on 12/19 (SA 1863) to make three changes to what was agreed to by the conference committee (and voted on by the House on 12/19 requiring them to re-vote on 12/20). These changes:
  1) A name change from Tax Cuts and Jobs Act to a longer one (see first paragraph of this post).
  2) Removing homeschooling expenses from the expanded use for 529 accounts.
  3) Changing the language of new IRC Section 4968 (HR 1, Sec. 13701) to remove "tuition-paying" in defining students for purposes of this excise tax on investment income of private colleges and universities.

H.R. 1 - Two examples of individuals (based on HR 1 as passed by House and bill passed by Senate Finance Committee): [See a newer example based on final bill here.]

Family of 4, wages $100K, state taxes $8K, mtg int $10.5K, charitable $500
Family of 4, wages $250K, mtg int $40K, State tax $35K, charitable $5K, misc $3K
2018 current law
H.R. 1
2018 current law
H.R. 1
Taxable income
$64,400
$75,600
$150,400
$205,000
Tax
$8,708
$9,072
$28,908
$39,550
Child credit
$2,000
$3,200
$0
$3,200
Non-child dependent credit
--
$600
--
$600
AMT
$0
--
$3,372
--
Net tax
$6,708
$5,272
$32,280
$35,750
























Note: The family above with $40,000 of mortgage interest has a debt greater than the new $500,000 limit allowed by H.R. 1, but falls under the transition rule. If this taxpayer instead had a new mortgage, the tax would be higher because H.R. 1 limits mortgage interest to a debt of $500,000..

SFC (note the Senate version which increased the child credit to $2,000) - Same examples as above:

Family of 4, wages $100K, state taxes $8K, mtg int (AI) $10.5K, charitable $500
Family of 4, wages $250K, mtg int (AI) , $40K, State tax $35K, charitable $5K, misc $3K
2018 current law
SFC
2018 current law
SFC
Taxable income
$64,400
$75,600
$150,400
$205,000
Tax
$8,708
$8,739
$28,908
$39,742
Child credit
$2,000
$3,300
$0
$3,300
Non-child dependent credit
--
--
--
AMT
$0
--
$3,372
--
Net tax
$6,708
$5,439
$32,280
$36,442
Tax HR 1
$5,272
$35,750

There are numerous changes for individuals, businesses, estates, and exempt entities in the proposals. The above examples aim to illustrate that not everyone gets a tax cut; it depends on the mix of their income and current deductions.

What do you think?

No comments: