House and Senate tax-cut bills could impact your taxes next year
It’s been 30 years since the last major changes to the tax law. Will reform be a reality this time?
On Thursday, Senate Republicans released their tax plan. On the same day, the House Ways and Means Committee advanced the House GOP tax-reform bill, sending it to a possible vote as early as next week.
What’s different in the two bills, and how could they impact your taxes next year and beyond?
“Overall, they’re very similar,” Jackson Hewitt Chief Tax Officer Mark Steber tells CNBC’s “On The Money” in a recent interview.
“The House bill kind of followed the framework put out several weeks ago by the (Donald Trump) administration,” he said, “and the Senate bill really dovetails right onto that.”
Both versions would likely lower individual tax rates — the standard deduction would double to $12,000 for single filers and $24,000 for couples.
Itemized deductions could be eliminated or limited, including state and local taxes, medical expenses, and student loans. Plus, the mortgage interest deduction may change.
“There are a few nuanced differences,” Steber explained, saying the Senate bill “totally takes out the state and local tax” deductibility.
“But they kept the basic premise the same, doubling the standard deduction, moving the tax rates around a little bit,” he said.
The House version has four tax brackets, while the Senate bill has seven, similar to the current seven brackets, Steber said, but “lowering the top and the bottom rates.”
While acknowledging a lot can and probably will change in the tax-reform process, Steber ran some rough scenarios on what the current GOP tax plans could mean for different types of taxpayers.
A single mom with one child making $30,000 a year would “lose the (dependent) exemption, but she gains on the child tax credit up to $1,650 in the Senate version.” With the doubling of the standard deduction, “she will end up a winner to the tune of $700 under the House bill, probably a bit more on the Senate bill. ”
Another example Steber provided was a family of four, a couple with two kids earning $60,000 a year.
He found “they will lose the exemptions for all four family members, but they make out on the increased standard deduction up to $24,000. They also make some inroads in the child dependent care credit, and the tax rates. According to Jackson Hewitt’s calculations, “they end up in a sweet spot, as well, to the tune of almost $1,400 or higher.”
An analysis of the tax plan by the Joint Commission on Taxation (JCT), a non-partisan committee of Congress, found 58.2 percent of taxpayers would get a tax cut in 2019. But the JCT found by 2027, “fewer than half of Americans would have a tax cut of $100 or more, and about 20 percent would see a tax increase.
“There’s no particular demographic that wins or loses, ” Steber says, “so when you hear that one particular segment is going to be paying more or paying less. You kind of have to take in their entire tax profile. What makes up their tax income? ”
“Most taxpayers, especially moderate and middle-income taxpayers, should enjoy some real benefits from this plan, should it come to law,” he said.