After this week, America will likely be well on its way to a once-in-a-generation tax reform.
The House and Senate are poised to pass the much-anticipated bill that drafts major changes to the country’s tax code Tuesday and Wednesday, respectively. That would send it to President Donald Trump’s desk by Dec. 31 and allow it to become a law in the new year. Most taxpayers would begin to see its affects in spring of 2019, when they file their 2018 tax returns.
But what exactly will taxpayers see? Here are five things you need to know about the impending tax reform:
- Standard deductions will double. The amount of income you receive that is not subject to taxation will rise from $6,350 to $12,00 for single people and from $12,700 to $24,000 for couples. That means most Americans would see a tax break, at least in the next few years, according to a Politico article.
- People will be able deduct more medical expenses — for a bit. As of right now, tax payers can deduct medical expenses that exceed 10 percent of their adjusted gross income. That threshold would fall to 7.5 percent of adjusted gross income for this tax year and the next under the new bill. But tax payers wouldn’t be able to enjoy this perk for long — the deductions would fall back to their 10 percent threshold in 2019.
- The corporate tax rate will decrease. That rate will fall from its current 35 percent level to 21 percent. That about matches the House originally wanted the corporate tax rate (at 20 percent), but it’s not quite as low as the 15 percent corporate tax rate Trump ran on, according to an article from The Atlantic. Those cuts are expected to cut taxes sharply for business owners and will allow companies to write off costly purchases of new equipment and buildings.
- Grad students won’t have to pay taxes on tuition waivers. Originally, it looked like the new tax bill would count tuition waivers for grad students as taxable income. It also looked like the bill might do away with college loan interest deductions. But neither of those things are in the version of the bill expected to pass Congress this week. Still, the bill does include an excise tax on large college endowments, which opponents said could hurt college scholarships in the future.
- All these new tax cuts are expected to cost $1.5 trillion. The government has budgeted for that $1.5 trillion and advocates have said that would mostly be made up by revenue growth. But some remain skeptical. Many official estimates are concerned the real cost of the package may also be more than $1.5 trillion if temporary individual tax cuts are extended past the eight years they’re scheduled for. Right now, those extensions are expected.