If the Senate has its way, how you pay your taxes in 2018 is going to be a whole lot different.
After winning over a few holdout Republican senators, the Senate passed its tax reform bill today — setting the stage for major changes to come.
But, expect a little more drama first. The Senate and the House now need to reconcile their respective tax plans so that they can get a version in front of President Trump to sign before the end of the year. If you’ve been unable to keep up with the headlines, below is our cheat sheet for what the Senate has proposed, along with some major points of difference from the House version of the bill that passed in November.
What's Likely to Change About Taxes
The Senate and House mostly agree on these points, so chances are good you’ll notice these changes next year.
A Higher Standard Deduction Both the Senate and House bills would roughly double the standard deduction (the deduction that any taxpayer can take when they file, based on their filing status). The Senate is proposing upping it from $6,350 for single filers to $12,000, and from $12,700 for married filing jointly couples to $24,000. The House version is just slightly higher.
No More Personal Exemptions Both the House and Senate would get rid of personal exemptions, the amounts you can deduct from your income for yourself and some dependents.
Deductions for State and Local Property Taxes Although the initial Senate plan proposed suspending state and local tax deductions altogether, lawmakers have since softened their stance to allow for up to $10,000 in state and local property tax deductions — which mirrors what’s in the House plan.
A Higher Child Tax Credit The Senate bill would increase the Child Tax Credit from $1,000 to $2,000 per child, with an additional $500 credit for each non-child dependent (like an aging grandparent). The House bill increases the credit to $1,600 per child, while adding a $300 credit for each parent or non-child dependent in a family.
What's Still Up for Debate
The Number of Tax Brackets This is a biggie and could impact your returns the most. The Senate bill keeps seven tax brackets, but changes them slightly to 10%, 12%, 22%, 24%, 32%, 35% and 38.5%. The House plan proposed only four: 12%, 25%, 35% and 39.6%.
The Mortgage Interest Deduction The House plan proposes limiting the amount of interest homeowners can write off on new mortgage debt to the first $500,000 of their home loans. Senate Republicans, however, want to keep that cap at the current $1,000,000.
The Fate of Other Key Deductions Although the House wants to repeal both medical expense deductions and student loan interest deductions, the Senate has proposed keeping both — and even expanding the medical expense deduction to allow people to deduct medical costs that exceed 7.5% of their income, down from the current 10%.
The Alternative Minimum Tax Although the House bill would repeal the AMT — an additional tax initially intended to keep high earners from using loopholes to avoid paying taxes — the Senate version proposes keeping it.
How Permanent the Changes Are While the House is proposing its changes become permanent, some provisions in the Senate bill would expire in 10 years.
This publication is not intended as legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor.