Tax Cuts & Jobs Act of 2017
The Tax Cuts & Jobs Act of 2017 was a major piece of legislation that included:
- Massive individual tax changes
- Massive corporate tax changes
- Major pass-through income tax changes
- Major estate and gift tax changes
- Complete overhaul and repeal of most itemized deductions
Here are key changes to U.S. tax law for individuals and businesses caused by the Tax Cuts & Jobs Act.
Individual Tax Rates
(Note: Individual rate cuts would expire after 2025.)
Former law:
- Seven rates, starting at 10 percent and reaching 39.6 percent for incomes above $418,401 for singles and $470,701 for married, joint filers.
New law under the Tax Cuts & Jobs Act of 2017:
- Seven rates, starting at 10 percent and reaching 37 percent for incomes above $500,000 for singles and $600,000 for married, joint filers.
For joint filers:
- 10 percent: $0 to $19,050
- 12 percent: $19,050 to $77,400
- 22 percent: $77,400 to $165,000
- 24 percent: $165,000 to $315,000
- 32 percent: $315,000 to $400,000
- 35 percent: $400,000 to $600,000
- 37 percent: $600,000 and above
For single filers:
- 10 percent: $0 to $9,525
- 12 percent: $9,525 to $38,700
- 22 percent: $38,700 to $82,500
- 24 percent: $82,500 to $157,500
- 32 percent: $157,500 to $200,000
- 35 percent: $200,000 to $500,000
- 37 percent: $500,000 and above
Corporate Tax Rate
Former law: 35 percent
New law under the Tax Cuts & Jobs Act of 2017: 21 percent, beginning in 2018.
Corporate Alternative Minimum Tax
Former law: Applies a 20 percent rate as part of a parallel tax system that limits tax benefits to prevent large-scale tax avoidance. Companies must calculate their ordinary tax and AMT tax, and pay whichever is higher.
New law under the Tax Cuts & Jobs Act of 2017: Repealed.
Individual Alternative Minimum Tax
Former law: Individual AMT can apply after exemption level of $54,300 for singles and $84,500 for married, joint filers, and the exemptions phase out at higher incomes.
New law under the Tax Cuts & Jobs Act of 2017: Increase the exemption to $70,300 for singles and $109,400 for joint filers. Increase the phase-out threshold to $500,000 for singles and $1 million for joint filers. The higher limits would expire on Jan. 1, 2026.
Expensing Equipment
Former law: Businesses must take depreciation, spreading the recognition of their equipment costs for tax purposes over several years.
New law under the Tax Cuts & Jobs Act of 2017: Businesses could fully and immediately deduct the cost of certain equipment purchased after Sept. 27, 2017 and before Jan. 1, 2023. After that, the percentage of cost that could be immediately deducted would gradually phase down.
Repatriation
Former law: The U.S. taxes multinationals on their global earnings at the corporate rate of 35 percent, but allows them to defer taxes on those foreign earnings until they bring them back to the U.S., or “repatriate” them.
New law under the Tax Cuts & Jobs Act of 2017: U.S. companies’ overseas income held as cash would be subject to a 15.5 percent rate, while non-cash holdings would face an 8 percent rate.
Pass-Through Deduction
Former law: Pass-through businesses, which include partnerships, limited liability companies, S corporations and sole proprietorships, pass their income to their owners, who pay tax at their individual rates.
New law under the Tax Cuts & Jobs Act of 2017: Owners could apply a 20 percent deduction to their business income, subject to limits that would begin at $315,000 for married couples (or half that for single taxpayers).
Obamacare Individual Mandate
Former law: An individual who fails to buy health insurance must pay penalties of $695 (higher for families) or 2.5 percent of their household income — whichever is higher, but capped at the national average cost of the most basic, low-premium, high-deductible plan.
New law under the Tax Cuts & Jobs Act of 2017: Repeal the penalties.
Standard Deduction and Personal Exemptions
Former law: $6,350 standard deduction for single taxpayers and $12,700 for married couples, filing jointly. Personal exemptions of $4,050 allowed for each family member.
New law under the Tax Cuts & Jobs Act of 2017: $12,000 standard deduction for single taxpayers and $24,000 for married couples, filing jointly. Personal exemptions repealed.
Individual State and Local Tax Deductions
Former law: Individuals can deduct the state and local taxes they pay, but the value is subject to certain limits for high earners.
New law under the Tax Cuts & Jobs Act of 2017: Individuals can deduct no more than $10,000 worth of the deductions, which could include a combination of property taxes and either sales or income taxes.
Mortgage Interest Deduction
Former law: Deductible mortgage interest is capped at loans of $1 million.
New law under the Tax Cuts & Jobs Act of 2017: Deductible mortgage interest for new purchases of first or second homes would be capped at loans of $750,000 starting on Jan. 1, 2018.
Medical Expense Deduction
Former law: Qualified medical expenses that exceed 10 percent of the taxpayer’s adjusted gross income are deductible.
New law under the Tax Cuts & Jobs Act of 2017: Reduce the threshold to 7.5 percent of AGI for 2017 and 2018.
Child Tax Credit
Former law: A $1,000 credit for each child under 17. The credit begins phasing out for couples earning more than $110,000. The credit is at least partially refundable to qualified taxpayers who earned more than $3,000.
New law under the Tax Cuts & Jobs Act of 2017: Double the credit to $2,000 and provide it for each child under 17 through 2025. Raise the phase-out amount to $400,000, and cap the refundable portion at $1,400 in 2018.
Estate Tax
Former law: Applies a 40 percent levy on estates worth more than $5.49 million for individuals and $10.98 million for couples.
New law under the Tax Cuts & Jobs Act of 2017: Double the thresholds so the levy applies to fewer estates. The higher thresholds would sunset in 2026.
