- Republicans finally unveiled their plan to overhaul the tax code.
- Tax rates for the average single young professional may not change much.
- A single taxpayer who makes $US75,000 before taxes and does not itemize deductions could save about $US2,000 a year.
Tax reform is moving forward.
Republicans unveiled a 429-page plan to overhaul the US tax code and change the way Americans pay taxes.
The typical American family of four with a household income of $US60,000 could save $US1,182 a year, according to House GOP leaders. That’s less than $US100 a month.
A single taxpayer who doesn’t itemize deductions and earns $US75,000 a year will fare slightly better. The chart below shows how much you would owe the IRS in 2017, compared to how much you would owe under Trump’s tax plan.
Someone who earns $US75,000 a year could expect annual tax savings of $US2,028. That breaks down to $US84.50 per paycheck, if you’re paid twice a month.
Most Americans — about 70% — claim the standard deduction when filing their taxes. For those who do, their paychecks will almost certainly increase if Trump’s tax plan passes, thanks to proposed tweaks to the current standard deduction and tax brackets.
In 2017, the standard deduction for a single taxpayer is $US6,350, plus one personal exemption of $US4,050. The new proposal essentially combines those into one larger standard deduction: $US12,000 for an individual, and $US24,000 for joint filers. Tax brackets could shrink from the seven we have now to four: 12%, 25%, 35%, and 39.6%.
Under the latest proposal, many deductions would be eliminated, including the state and local income tax deduction and the student loan interest deduction. The mortgage interest deduction would be cut in half, affecting home buyers in expensive housing markets. Taxpayers will still be able to deduct 401(k) savings, however.
Americans who typically itemize large deductions, such as medical bills, could end up paying more if the tax plan passes.
Details will be up for debate as the bill, dubbed the “Tax Cuts and Jobs Act,” moves through Congress. Democratic leaders have largely criticised the bill, saying it benefits corporations and the wealthy instead of middle and working class Americans. Trump has said he would like a finalised version on his desk by Christmas.
Ultimately, whether $US84.50 per paycheck seems like a massive tax cut depends on how you view Trump’s tax plan.