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Republican leaders in the U.S. House of Representatives unveiled their long-awaited tax reform bill Thursday, promising sweeping financial relief for millions of Americans.
The draft legislation, known as the “Tax Cuts and Jobs Act,” was released by the House Committee on Ways and Means following closed-door meetings and public speeches. Ways and Means is the chief tax-writing committee in the House.
As had been widely expected following a White House statement in April and Republican outline in September, the bill overhauls individual income tax rates and significantly increases the standard deduction.
We’ve already discussed some of the ways in which this tax plan might impact your wallet in “Tax Reform: 5 Things They’re Not Telling You.” But the changes in individual tax rates also are likely to have a big impact on how much money you end up paying to Uncle Sam.
New tax brackets and standard deductions
The Tax Cuts and Jobs Act proposes to reduce the number of individual income tax brackets. Rather than seven, there would be four main brackets:
- 12 percent tax rate
- 25 percent tax rate (which would apply to single taxpayers earning at least $45,000 and joint filers and surviving spouses earning at least $90,000, for example)
- 35 percent tax rate (single taxpayers earning at least $200,000 and joint filers and surviving spouses earning at least $260,000)
- 39.6 percent tax rate (single taxpayers earning at least $500,000 and joint filers and surviving spouses earning at least $1 million)
As we noted earlier today, the standard deduction also would nearly double under the House’s tax overhaul bill, rising to:
- $24,000 for joint filers and surviving spouses
- $18,000 for unmarried individuals with least one qualifying child
- $12,000 for everyone else
The standard deduction can reduce the amount of your income taxed by the federal government, according to the Internal Revenue Service. For example, if your standard deduction was $12,000 for tax year 2017 and you chose to take the standard deduction, you would not be taxed on the first $12,000 of income you earned in 2017.
Currently, the standard deduction is based on multiple factors besides tax filing status, such as age and income. If you don’t know what your standard deduction was last year, you can use the IRS’ “How Much Is My Standard Deduction?” tool to figure it out.
The bill introduced Thursday is effectively a draft of legislation proposed by the Committee on Ways and Means. While it could become law, it is far from it right now.
The bill has a long road ahead. Both the House and Senate must vote to pass the bill and agree on a single version of it before it would be final. Only then could it be sent to President Donald Trump’s desk, giving him the opportunity to sign it into law.
Still, the introduction of even draft legislation is a significant step in this process. Further, if Republicans are able to see the bill through, it will mark the first time that the U.S. tax code was overhauled since President Ronald Reagan signed the 1986 Tax Reform Act into law.
So, what’s your take on this step in the GOP’s tax reform efforts? Sound off below or over on our Facebook page.