In late September, President Donald Trump revealed a broad framework for a tax plan that, while light on details, indicated big changes were on the horizon for how we all pay Uncle Sam.
Those changes have arrived: On Thursday, House Republican lawmakers unveiled their tax proposal. The plan echoes some of what President Trump has already said, but some new crucial details were revealed that aim to cut taxes for corporations and the middle class. Here are a few of the highlights.
Four Tax Brackets. Trump had already revealed plans to cut the current seven tax brackets down to three, and the new Republican plan confirms those details, mostly. The proposal includes three tax brackets at 12%, 25% and 35% for middle-class earners, but retains the top 39.6% rate for the country's highest earners (married filing jointly couples who earn more than $1 million and single filers who earn more than $500,000).
Higher Standard Deduction. As already outlined by Trump, the standard deduction would go up from $6,350 to $12,000 for individuals, and from $12,700 to $24,000 for married filing jointly couples.
Lower Mortgage Interest Deduction. Currently, homeowners can claim a deduction for the mortgage interest they pay on the first $1 million of their home loan. The new proposal caps that to the first $500,000 for new homes. (Existing homeowners are allowed to keep their current deduction.)
No More Medical Expense Deductions. Trump's blueprint did indicate that many deductions would be eliminated, and the medical expense deduction is now on the chopping block in the Republican plan.
No More Student Loan Interest Deductions. Deductions for student loan interest would also be eliminated under the proposed plan. Currently, taxpayers can deduct up to $2,500 in interest they pay for qualified education loans.
New Family Tax Credit. This new tax credit would increase the current Child Tax Credit from $1,000 to $1,600 and offer an additional $300 tax credit for each parent in the family and any non-child dependents, like an aging parent.
No Changes to Retirement Accounts. One concern leading up to the release of the new plan was whether legislators would change the tax advantages of 401(k) plans or further limit contributions to retirement accounts, but so far, the plans go unchanged, to the relief of many retirement savers.
Lower Corporate Tax Rate. The current bill proposes lowering the current corporate tax rate from 35% to 20%.
So what's next? The House Ways & Means Committee will begin marking up the bill on November 6 before sending it up for a House vote, so expect more changes to come. But if the bill, which Republican leaders are hoping will reach the president's desk by Christmas, goes through with even some of the changes described, it'll mark one of the biggest overhauls to the tax code in a long time.
This article is not intended as tax advice. Please see your individual tax planner for your specific situation.