6 Things You Should Know About the Senate Tax Plan

6 Things You Should Know About the Senate Tax Plan

Last week, House Republicans had their time in the tax spotlight when they unveiled their plan to overhaul the tax code, providing a response to the House version that was released

Now, it’s the Senate’s turn. As House lawmakers prepare to vote on their bill next week, Senate Republicans unveiled their own competing proposal on Thursday. Here are some of the key differences between the two.

Keeps 7 Tax Brackets Currently, there are seven tax brackets: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The House plan proposed cutting those down to just four: 12%, 25% and 35%, while retaining the 39.6% top tax rate. The Senate version, meanwhile, proposes keeping seven tax brackets, but with slight adjustments to 10%, 12%, 22.5%, 25%, 32.5% and 38.5%.

Eliminates State and Local Tax Deductions The Senate plan would get rid of deductions for state and local taxes. The House version, meanwhile, gives a little more leeway: Although it eliminates deductions for what you pay in state and local income taxes, it allows for deductions on state and local property taxes — with a $10,000 limit.

Retains Some Key Tax Breaks There are a number of deductions that the House plan proposed eliminating that the Senate version wants to keep. For example, the House plan limited the amount of interest homeowners could write off on new mortgage debt to the first $500,000 of their home loans. Senate Republicans are proposing keeping that cap to the current $1,000,000. They also want to keep the medical expense deduction and the student loan interest deduction in place, both of which were cut from the House proposal.

Raises Child Tax Credit The Senate bill would increase the Child Tax Credit from $1,000 to $1,650. The House version had proposed increasing that credit to $1,600, while also adding a $300 credit for each parent or non-child dependent (like an aging grandparent) in a family.

Keeps the Estate Tax Intact The House plan proposed nearly doubling the estate tax exemption from the current $5.49 million to more than $10 million, and then repealing the estate tax altogether starting in 2024. The Senate version also seeks to double the estate tax exemption, but it proposes to retain the estate tax.

Hits Pause on a Lower Corporate Tax Rate Both the House and Senate bills want to reduce the corporate tax rate from its current 35% to 20%, but House legislators want to enact the cut starting in 2018, while Senate lawmakers want to hold off until 2019.

There are some things that are the same in both bills: namely, standard deductions will still be doubled to $12,000 for individuals and $24,000 for married couples filing jointly, and personal exemptions would go away completely. Still, expect a lot of heated debate over the next few weeks as legislators scramble to get a bill on the president’s desk before the end of the year. Up next: the Senate Finance Committee is scheduled to mark up their bill next week, just as the House could send its version to the floor for a vote.

RELATED: We Asked, CPAs Answered: 8 Big Mistakes Taxpayers Make

This article is not intended as tax advice. Please see your individual tax planner for your specific situation.

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