Here's what Trump's new tax plan means for a family making $25,000, $75,000, or $175,000 a year
- President Donald Trump's tax plan could reduce taxes for most Americans, while increasing taxes for others.
- Exactly how your tax bill could change depends on many factors, including whether you itemize deductions.
- In the chart below, we've calculated potential tax savings for a family of four at different income levels.
President Donald Trump's tax plan — if it passes — will be the first major change to the US tax code in decades.
The 429-page GOP tax plan, called the "Tax Cuts and Jobs Act," proposes many changes, such as reducing the seven tax brackets we currently have to four, increasing the standard deduction, and eliminating personal exemptions.
As
it stands now, Trump's tax plan would lower taxes for most Americans,
but one in five could see an increase in their tax bill by 2027,
according to a new government report
from the nonpartisan Joint Committee on Taxation. In many ways, the new
tax plan shuffles the taxpayer deck — adding some benefits while
removing others.
We already looked at how Trump's tax plan could affect single, childless taxpayers
at various income levels. After receiving a lot of reader emails asking
how it might change the tax bill for families, we decided to take a
look.
So,
we ran some numbers using the current proposal to see how Trump's tax
plan might affect an American family of four, with two kids under the
age of 17.
The estimates in the chart show how Trump's tax plan could affect families at three different income levels.
- $25,000 household income: estimated annual tax increase of $72
- $75,000 household income: estimated annual tax savings of $1,711
- $175,000 household income: estimated annual tax savings of $2,264
Exactly how much taxpayers save — or how much more they pay — will depend on many factors, and as Business Insider's Josh Barro pointed out, tax cuts for middle class Americans aren't likely to be as sweeping as Republicans make it sound.
Wealthy Americans, including Trump himself, stand to benefit handsomely from the tax proposal, thanks to provisions eliminating the estate tax, among others.
As
the conversation around tax reform continues to unfold, there are a
couple important points to help understand how the plan could affect the
average American taxpayer, as well as the wealthy.
Approximately 70% of Americans claim the standard deduction, according to IRS data. High earners are more likely to itemize, but they aren't the only ones who do. Of taxpayers who itemize their deductions, 86.8% have an adjusted gross income below $200,000.
Under
the GOP proposal, Americans who claim the standard deduction will be
able to deduct $12,200, slightly higher than the current combined
$10,400 deduction, which includes the standard deduction and one
personal exemption. Joint filers would deduct $24,400, up from the
current $20,800, which includes the standard deduction and two personal
exemptions.
Among those who itemize deductions, the average claimed was $27,053 in 2015. The most common itemized deductions and the total amount deducted by US taxpayers in 2015 were:
- Taxes paid, including state and local income and sales tax: $539.8 billion
- Interest paid, which primarily covers mortgage interest: $294.5 billion
- Charitable contributions: $201.3 billion
- Medical and dental expenses: $84.2 billion
Trump's tax plan would do away with or limit many deductions, which could increase federal taxes for Americans who itemize their deductions.
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