President Trump has described the GOP tax proposal as a “significant tax reduction” for the middle class. While many will experience lower taxes over the coming years, the amount of reduction will vary significantly.
Additionally, some individuals might end up with a higher tax burden.
How can you determine your potential outcome?
Similar to the current tax code, various factors will influence your overall tax responsibility.
Considerations like marital status, number of children, income sources, residency, commonly utilized tax breaks, and others will impact the adjustments you might see if the GOP proposal is enacted.
H&R Block’s Tax Institute conducted multiple scenarios for filers in different situations to provide a clearer understanding of where individuals might stand in 2018, particularly for wage earners.
Over the next few years, many filers are expected to receive some form of tax reduction, although it’s not guaranteed for everyone.
However, things will evolve over the decade as individual tax reductions are set to expire after 2025.
Related: Discover the components of the GOP’s final tax proposal
Below is a glimpse of how individuals in various circumstances could be affected next year.
Note that these examples do not address the more intricate details of the Republican initiative, such as the differential taxation for business income versus wage income. Much analysis is still required from experts on how this will impact various filers.
Furthermore, these scenarios do not consider potential implications from other aspects of the tax bill, including the elimination of penalties for not having health insurance, or any prospective spending cuts intended to mitigate the overall tax bill’s cost.
Family of four residing in San Diego, Calif.
— Annual income: $150,000
— Married couple with two kids under 17
— Homeowners
— Current itemized deductions total $22,000 ($7,000 state/local income tax; $5,000 property tax; $8,000 mortgage interest; $2,000 charitable donations)
This family would save an estimated $3,559 in federal income taxes: They would no longer itemize their deductions and instead opt for the nearly doubled $24,000 standard deduction available to joint filers. Their maximum tax rate would decrease to 22% from 25%. They would also qualify for the expanded Child Tax Credit ($2,000 per child).
Related: Compare new tax brackets for 2018 under the existing law versus the GOP tax proposal
The Tax Institute also analyzed a married couple in Houston with three kids under 17, earning the same $150,000, and found they would save slightly more ($3,771) for similar reasons.
Head of Household in Kansas City, Mo.
— Annual income: $45,000
— Single parent with two kids under 17
— Renter
— Currently claims a standard deduction of $9,550
This family would save an estimated $1,802 in federal income taxes: The standard deduction for heads of households would nearly double to $18,000. Their highest tax rate of 15% would decrease to 12%, and the child tax credit would be raised to $2,000 per child.
Another scenario involved a single parent in Los Angeles with three kids under 17 making $75,000, who would save $2,560 for the same reasons.
Single Individual in Queens, N.Y.
— Annual income: $120,000
— No children
— Homeowner (co-op)
— Itemized deductions totaling $22,500 ($10,000 state/local income tax; $5,000 property tax; $6,000 mortgage interest; $1,500 charitable contributions)
This individual would save an estimated $101 in federal income taxes: Although her top tax rate would decrease to 24% from 28%, the GOP proposal caps her state and local tax deductions (combining income and property tax) at $10,000, reducing her previous deductions by $5,000. She would still itemize her deductions since, even accounting for the cap, her allowable deductions exceed the nearly doubled standard deduction of $12,000 for single filers.
Single Individual in Westminster, Colo.
— Annual income: $70,000
— No children
— Homeowner
— $10,000 in unreimbursed business expenses
— Itemized deductions totaling $19,600 ($2,500 state and local income tax; $3,500 property tax; $5,000 mortgage interest deduction; $8,600 in unreimbursed employee business expenses, since filers are only permitted to deduct those expenses exceeding 2% of AGI).
This individual would pay an estimated $1,484 more in federal income taxes: Despite the reduction in the top tax rate to 22% from 25%, the GOP proposal disallows any deductions for unreimbursed business expenses, resulting in this filer taking the $12,000 standard deduction instead of itemizing.
Single Individual in New York City
— Annual income: $500,000
— No children
— Homeowner
— Itemized deductions totaling $135,000 ($46,000 state/local taxes; $24,000 property tax; $55,000 mortgage interest; $10,000 charitable contributions) but capped at $128,001 under current high earner limitations.
This individual would pay an estimated $6,470 more in federal income taxes: The increase is due to two main factors. Firstly, the individual’s highest tax rate would escalate to 35% under the GOP proposal from 28% currently. Secondly, the state and local tax deduction would be limited to $10,000, a decrease from the $70,000 currently claimed.
