Current Ordinary Income Tax Rates

TCJA Ordinary Income Tax Rates

Single Taxpayers under Current Law

Single Taxpayers under the TCJA

Married Filing Joint Taxpayers under Current Law

Married Filing Joint Taxpayers under the TCJA

10% & 15%

12%

$0-37,950

$0-45,000

$0-75,900

$0-90,000

25% & 28%

25%

$37,951-191,650

$45,001-200,000

$75,900-233,350

$90,001-260,000

33% & 35%

35%

$191,651-418,400

$200,000-500,000

$233,351-470,700

$260,000-1,000,000

39.6%

39.6%

$418,401+

$500,000+

$470,701+

$1,000,001+

Topic

Proposed Law

Current Law

State & Local Tax Income and Sales Tax Deduction

No itemized deduction for state and local income or sales taxes, but a deduction for state and local income or sales taxes paid or accrued in carrying on a trade or business or producing income would be allowed.

An itemized deduction for all state and local government income or sales taxes paid.

Mortgage Interest

The amount of acquisition debt used to calculate mortgage interest deduction would be reduced to $500,000. Interest would be deductible only on a taxpayer’s principal residence. For debt incurred before November 2, 2017, the $1 million threshold would still apply.

Deduction for mortgage interest paid with respect to a principal residence and one other residence of the taxpayer. Itemizers may deduct interest payments on up to $1 million in acquisition indebtedness and up to $100,000 in home equity indebtedness.

Real Estate Taxes

An itemized deduction for real property taxes paid up to $10,000.

No current dollar limitation.

Alternative Minimum Tax (AMT)

AMT would be repealed. AMT Credit carryforwards could be used to claim a refund of 50 percent of the remaining credits (to the extent the credits exceed regular tax for the year) in tax years beginning in 2019, 2020, and 2021. Taxpayers would be able to claim a refund of all remaining credits in the tax year beginning in 2022.

Taxpayers must compute their income for purposes of both the regular income tax and the AMT. The tax liability is equal to the greater of their regular income tax liability or AMT liability.

Charitable Contributions

Would remain largely unchanged with the 50 percent of adjusted gross income (AGI) limitation for cash contributions to public charities and certain private foundations increasing to 60 percent

A taxpayer may claim an itemized deduction for charitable contributions with certain limitations based on AGI.

Standard Deduction

The standard deduction would increase to:

• $24,000 for joint filers (and surviving spouses)
• $12,000 for individual filers
• $18,000 for single filers with at least one qualifying child

The standard deduction is currently:

• $12,700 for married individuals filing a joint return.
• $6,350 for single individuals and married individuals filing separate returns
• $9,350 for heads of households.

Personal Exemptions

The deduction for personal exemptions and the personal exemption phase-out would be repealed.

For 2017, taxpayers may generally deduct $4,050 for each personal exemption. This amount is indexed annually for inflation (CPI). Subject to the personal exemption phase-out based on income.

Medical Expense Deduction

Repealed

Deduction for out-of-pocket medical expenses of the taxpayer, a spouse, or a dependent. This deduction is allowed only to the extent the expenses exceed 10 percent of the taxpayer’s adjusted gross income.

Alimony Payment Deduction and Inclusion

Alimony payments would not be deductible by the payor or includible in the income of the payee. The provision would be effective for any divorce decree or separation agreement executed after 2017 and to any modification after 2017 of any such instrument executed before such date if expressly provided for by such modification.

Alimony payments generally are an above-the line deduction for the payor and included in the income of the payee.

Low Bracket Phase out

For high-income taxpayers, the provision would phase out the tax benefit of the 12% bracket on the initial $90,000 of income on a joint return ($45,000 single) and instead subject it to tax at 39.6%, beginning at an adjusted gross income of $1.2 million for a joint return.

No current phase out.

Limitation on Itemized Deductions

Overall limitation on itemized deductions would be repealed.

The total amount of otherwise allowable itemized deductions (other than medical expenses, investment interest, and casualty, theft, or wagering losses) is limited for certain upper-income taxpayers.

Dependent Care Assistance Programs

Repealed effective January 1, 2023.

Employer-provided dependent care assistance programs are excluded from employees’ income up to a limit of $5,000 per year to help pay for work-related expenses of caring for a child under the age of 13 or spouses or other dependents who are physically or mentally unable to care for themselves.

Child Tax Credit and New Family Tax Credit

The Child Tax Credit would be increased to $1,600. A $300 credit would be available for taxpayers, spouses, and dependents who do not qualify as children under the Child Tax Credit. Beginning of phase out would be increased to $230,000 (for joint filers), and $115,000 (for single filers). 

An individual may claim a tax credit for each qualifying child under the age of 17. The amount of the credit per child is $1,000. The aggregate amount of child credits that may be claimed is phased out by $50 for each $1,000 of AGI over $75,000 for single filers and $110,000 for joint filers.

Capital Gains Rate

With the reduction of the number of brackets, capital gains tax rates of 0%, 15% and 20% are established based on inflation-indexed income levels largely similar to the bracket thresholds under current law.

However, the income at which the 20% rate is imposed would change substantially for married filing separate taxpayers (down from $418,401 to $239,500) and as single taxpayers (up from $235,351 to $425,800).

Capital gains are taxed at 0% for those in the 10% and 15% brackets, 15% for those in the 25%, 28%, 33%, and 35% brackets, and 20% for those in the 39.6% brackets.

Unreimbursed Employee Business Expenses

No itemized deduction for expenses attributable to the trade or business of performing services as an employee.

Itemized deduction subject to 2% floor.

Deduction for Tax Preparation Expenses

Repealed

Deduction allowed subject to 2% floor.

Credit for Plug-In Electric Drive Motor Vehicles

Repealed

A taxpayer may claim a credit for each qualified plug-in electric-drive motor vehicle placed in service capped at $7,500

Education Credits Reform

The American Opportunity Tax Credit (AOTC), Hope Scholarship Credit (HSC) and the Lifetime Learning Credit (LLC) would be consolidated into an enhanced AOTC. The enhancement is a credit for an additional fifth year of post-secondary education at half the rate of the first four years, with up to $500 of such credit being refundable.

The American Opportunity Tax Credit provides a 100 percent tax credit for the first $2,000 of certain higher education expenses and a 25 percent tax credit for the next $2,000 of such expenses, for a maximum credit of $2,500 subject to income phase out limitations.

Deduction for Personal Casualty Losses

The deduction for personal casualty losses would generally be repealed. The deduction for personal casualty losses associated with special disaster relief legislation would not be affected.

Individuals may claim an itemized deduction for personal casualty losses (i.e., losses not connected with a trade or business or entered into for profit), including property losses arising from fire, storm, shipwreck, or other casualty, or from theft, subject to certain income limitations.

Deduction for Moving Expenses

Repealed

Deduction for moving expenses incurred in connection with starting a new job, regardless of whether or not the taxpayer itemizes his deductions.

Exclusion of Gain from Sale of a Principal Residence

A taxpayer would be required to own and use their home as their principal residence for five out of the previous eight years to qualify for the exclusion. In addition, the taxpayer would be able to use the exclusion only once every five years. The exclusion would be phased out by one dollar for every dollar of adjusted gross income in excess of $500,000.

Taxpayers filing jointly may exclude from gross income up to $500,000 of gain on the sale of a principal residence. The property must have been owned and used as the taxpayer’s principal residence for two out of the previous five years. A taxpayer may use this exclusion only once every two years.

Student Loan Interest Deduction

Repealed

An above-the-line deduction for interest payments on qualified education loans for qualified higher education expenses of the taxpayer, the taxpayer’s spouse, or dependents capped at $2,500 subject to income phase-outs.

Tuition Expenses

Repealed

An individual may claim an above-the-line deduction for qualified tuition and related expenses incurred capped at $4,000 subject to income phase-outs.

Interest on United States Savings Bonds

Repealed

Interest on United States savings bonds is excluded from income if used to pay qualified higher education expenses, subject to income phase-outs.

Employer-Provided Education Assistance

Repealed

Employer-provided education assistance is excluded from income. The exclusion is limited to $5,250 per year and applies to both graduate and undergraduate courses.

Recharacterization of Roth IRA Contributions

The rule allowing recharacterization of IRA contributions and conversions would be repealed.

An individual may re-characterize a contribution to a traditional IRA as a contribution to a Roth IRA (and vice versa).

Medical Savings Accounts (MSA)

No deduction would be allowed for contributions to an Archer MSA.

Employer contributions to an Archer MSA would not be excluded from income.

Existing Archer MSA balances, however, could continue to be rolled over on a tax-free basis to a Health Savings Account (HSA).

Above-the-line deduction for contributions to an Archer MSA and exclusion from income for employer contributions to an MSA.

Topic

Proposed Law

Current Law

Corporate Tax Rate

Starting in 2018, corporations would be subject to a flat tax rate of 20%.

Personal service corporations would be subject to a flat tax rate of 25%.

Taxable Income—Tax Rate

$0-$50,000—15%

$50,001-$75,000—25%

$75,001-$10,000,000—34%

Over $10,000,000—35%

Personal service corporations are subject to a flat rate of 35% without the benefit of graduated tax rates.

Bonus Depreciation

100% of the cost would be  expensed immediately for qualified property placed in service after September 27, 2017. Under the current bill, used property would now be eligible for bonus depreciation in addition to new property, as long as it is the taxpayer’s first use of the property.

Bonus depreciation may be taken on certain “qualified property” placed in service through 2019. Taxpayers are allowed to take additional depreciation of 50% of the cost of the qualified property in 2017, 40% in 2018, and 30% in 2019. The use of the property must begin with the taxpayer in order to take the additional depreciation. 

Section 179 Expense

The expensing limitation would be increased to $5 million.

The definition for what qualifies as section 179 property would be expanded to include energy efficient heating and cooling property.

Businesses can immediately expense up to $500,000 of the cost of section 179 property placed in service during the year.

The $500,000 deduction is subject to an expensing limitation of $2 million. The $500,000 deduction is reduced by the amount of assets placed in service during the year in excess of $2 million.

Entertainment Expenses

Deduction of expenses incurred for entertainment repealed.

Expenses incurred relating to entertainment, amusement or recreation activities, or facilities may be deducted. The deduction is subject to a 50% limitation. Entertainment expenses are deductible provided taxpayer establishes that the item was directly related to the active conduct of a trade or business.

Employee Fringe Benefits

Deduction of employee fringe benefits would be repealed.

Employers can deduct de minimis fringe benefits paid on behalf of employees, including qualified transportation and parking expenses, on-premises gyms, or other benefits primarily benefits primarily personal in nature.

Cash Method of Accounting

The $5 million threshold for corporations and partnerships with corporate partners who may not use the cash method of accounting would be increased to $25 million. This threshold would be applied to the current year, and will not take prior years in to account.

Corporations and partnerships with a corporate partner may only use the cash method of accounting if their average gross receipts over all preceding years do not exceed $5 million.

Net Operating Loss

Net operating losses would be allowed to the extent of 90% of the taxpayers income, carried forward indefinitely. The two-year carry back would be repealed, but a special one-time carryback would be allowed for small business in certain casualty and disaster loss scenarios.

Net operating loss (NOL) is limited to the current year business loss. NOL cannot be deducted in the year they are incurred, but instead may be carried back two years, and carried forward 20 years.

Like-Kind Exchanges

Deferral of gain on like-kind exchanges would be limited to the exchange of real property.

Gain on the exchange of like-kind property is deferred. This rule does not apply to the exchange of stock in trade or other property held primarily for sale.

Domestic Production Activities

Domestic production activities deduction would be repealed.

Taxpayers are allowed a deduction of 9% of the lesser of qualified production activities income or taxpayers’ taxable income for the following year. The deduction is further limited to 50% of taxpayers’ W-2 wages for the year.

Employer-Provided Child Care Credit

The credit for employer-provided healthcare would be repealed.

Employers can claim a credit of 25% of qualified expenses for employee child care and 10% of qualified expense for child-care resource and referral services, limited to $150,000 per year.

Work Opportunity Credit

The work opportunity credit would be repealed for employees who begin work after 2017.

Employers can claim a credit of 40% of qualified first-year wages of employees. The credit is subject to various limits between $6,000 and $24,000.

Deduction for Unused Business Credits

The deduction for unused business credits would be repealed.

Unused business credits may be carried back one year and forward 20 years.

Topic

Proposed Law

Current Law

100% Deduction for Foreign-Source Portion of Dividends

The current-law system of taxing U.S. Corporations would be replaced with a dividend exemption system, in which 100% of the foreign-source portion of dividends paid by a foreign corporation to a U.S. corporate shareholder that owns 10% or more of the foreign corporation would be exempt from U.S. taxation.

U.S. citizens, resident individuals, and domestic corporations are generally all taxed on all income, whether earned in the US or abroad.

Repatriation of Foreign Earnings

A 10% or more shareholder of a foreign subsidiary would be subject to tax on a pro rata share of accumulated foreign Earnings and Profits (E&P) which have previously not been subject to U.S. tax. Such E&P would be subject to tax rates of 12% for liquid assets and 5% for all other E&P.

Foreign income earned by a foreign subsidiary is generally not subject to U.S. tax until income is distributed as a dividend to the U.S. corporation, subject to tax at the ordinary income rate of the corporation, up to 35%.

Foreign Tax Credit

No foreign tax credit or deduction would be allowed for any taxes paid or accrued with respect to any dividend to which the dividend exemption system would apply.

To mitigate double taxation, the US allows a credit or deduction for foreign income taxes paid designed to offset, in whole or in part, the U.S. tax owed on foreign income.

Stock Attribution Rules for Determining Status as a Controlled Foreign Corporation

A U.S. corporation would be treated as constructively owning stock held by its foreign shareholder.

A foreign subsidiary is a CFC (controlled foreign corporation) if it is more than 50% owned by one or more U.S. persons, each of which at least owning 10%. While a U.S. person may be treated as constructively owning stock held by related parties, a U.S. corporation generally cannot.

Topic

Proposed Law

Current Law

Estate and Gift Taxes (Effective 2018)

The amount of the lifetime gift, estate, and generation-skipping tax exclusion would double to $10 million.

Annual gift tax exclusion of $14,000, indexed for inflation, would remain unchanged.

The first $5 million worth of transferred property is exempt from estate, gift and generation-skipping tax in any combination.

Annual gift tax exclusion allowed of $14,000, indexed for inflation.

Estate and Gift Taxes (Effective post-2023)

The estate tax would be eliminated.

The gift tax would be lowered to a top rate of 35%.

The proposal maintains that basis in assets be stepped up after death.

Property in an estate is generally taxed at 40% before it passes to the beneficiaries of the estate.

Gifts are subject to a maximum rate of 40%.

Generation-Skipping Tax (Effective post-2023)

The generation-skipping tax would be repealed.

Property transferred beyond one generation is subject to an additional tax, with a top tax rate of 40%.

Topic

Proposed Law

Current Law

Unrelated Business Taxable Income (UBTI)

UBTI would be expanded to increase unrelated business taxable income by including certain fringe benefits in the calculation of UBTI

UBTI is derived from trade or business regularly carried on by an exempt organization under Code section 501(a).

The tax rate applied is the highest corporate tax rate.

Bond Reform

Interest on newly-issued private activity bonds (PABs) would now be considered taxable. PABs issued prior to 2017 would retain their character.

Interest from governmental and PABs is excluded from gross income.

PABs are typically an add-back for AMT taxpayers.

Bond Interest from Professional Stadium Production

The interest from bonds used to produce a professional stadium will be taxable.

Interest from bonds used to finance the production of a professional stadium have been previously classified as tax-exempt.

Excise Tax on Excess Tax-Exempt Organization Executive Compensation

A tax-exempt organization would be subject to a 20 percent excise tax on compensation, including benefits, in excess of $1 million paid to any of its five highest paid employees for the tax year.

There are currently no excise taxes with regard to executive compensation for tax-exempt organizations.

Excise Tax on Private Foundation Investment Income

The excise tax rate on net investment income would be streamlined to a single rate of 1.4 percent. Additionally, the rules providing for a reduction in the excise tax rate from 2 percent to 1 percent would be repealed.

Private foundations are subject to a 2 percent excise tax on their net investment incomes. However, they may reduce this excise tax rate to 1 percent by making distributions equal to the averages of their distributions from the previous five years plus 1 percent.

Churches and Political Speech

Churches would no longer lose tax-exempt status for participating or intervening in a political campaign, if the speech is in the ordinary course of the organization’s business and expenses relating to the speech are de minimis.

An entity exempt from tax under § 501(c)(3) is prohibited from participating in, or intervening in any political campaign on behalf of, or in opposition to, any candidate for public office.

Excise Tax Based on Investment Income of Private Colleges and Universities

Certain private colleges and universities would be subject to a 1.4 percent excise tax on net investment income. The provision would only apply to private colleges and universities with at least 500 students and assets valued at the close of the preceding tax year of at least $250,000 per full-time student. State colleges and universities would not be subject to the provision.

Private foundations and certain charitable trusts are subject to an excise tax of up to 2 percent on their net investment income. The excise tax on net investment income does not apply to public charities, including colleges and universities

Exception from Excess Business Holding Tax for Private Foundations

Private foundations would be exempt from the excess business holding tax if:

(1) The foundation owns all of the business’ voting stock;

(2) The foundation did not purchase any of the stock;

(3) The business distributes all of its net operating income to the foundation within 120 days of the close of the tax year; and

(4) The businesses directors and executives are neither substantial contributors to the foundation nor make up a majority of the foundation’s board of directors.

A private foundation is not permitted to own 20% or more of a for-profit business, and is subject to a 10% excise tax on the value of holdings exceeding 20% of the ownership in such business. The excise tax increases to 200% for excess holdings not disposed of prior to the end of the year after acquisition.