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Final Tax Bill Holds Sweeping Changes for Americans

December 20, 2017

On Wednesday, December 20, Congress approved the Tax Cuts and Jobs Act.

The congressional conference committee charged with merging the House and Senate versions of the measure produced an agreement on December 15. Initially passed by the House on December 19, lawmakers hit a procedural snag before ultimately approving it and sending the bill to the White House on December 20. Provisions relating to the expansion of 529 savings plans to K-12 education and certain elements of the endowment excise tax ran afoul of the Senate's Byrd Rule, which prohibits language deemed extraneous to budget matters. The Senate modified the bill slightly to comply with the Byrd Rule and it was passed by the Senate on the evening of December 19, then again by the House on the December 20.

While the bill's passage by both chambers of Congress was relatively certain, the failing health of Republican Senators John McCain (AZ) and Thad Cochran (MS) added additional anxiety for Republican Senate leaders where Republicans only hold a majority by two votes. Ultimately Sen. Cochran was present for the vote while Sen. McCain was not, but the legislation passed both the House and Senate along party lines and has been sent to the White House for President Trump's signature.

During deliberations, other Republican senators, Lisa Murkowski (AK), Susan Collins (ME), Bob Corker (TN), and Jeff Flake (AZ) each had expressed reservations about the bill for a variety of reasons; they all voted for it in the end, ensuring its passage.

The bill carries a number of new compliance issues for colleges and universities, but beyond that it makes significant changes for both corporate and individual taxpayers. Below are some of the most impactful changes in the final tax bill. For more information on higher education-specific impacts, visit NACUBO's tax reform webpage.

Corporate Tax Cuts

  • Cutting the corporate tax rate was a primary motivating factor for Republicans to take up tax reform efforts. The corporate tax rate has been permanently cut from 35 percent to 21 percent beginning in 2018. 

Alternative Minimum Tax (AMT) 

  • The Alternative Minimum Tax (AMT) has been repealed for corporations. For individuals, both exemption amounts and phaseout thresholds have been increased, however these increases will only last through 2025 and will return to current thresholds after that. 

State and Local Tax Deductions

  • Itemized deductions for state and local income taxes (e.g., property taxes and income taxes, or sales tax in lieu of income tax) have been limited to $10,000. 

Individual Income Tax Brackets

  • The existing seven different tax brackets have been modified as follows: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 38.5 percent. The income levels that determine bracket placement for taxation have also been slightly adjusted.

Affordable Care Act Individual Insurance Mandate

  • The individual insurance mandate that imposes a tax penalty on individuals without insurance has been repealed beginning in 2019. 

Mortgage Interest Deduction

  • The deduction for interest on home equity loans is suspended through 2025. The mortgage interest deduction is limited to loans for up to $750,000; this provision will also only apply through 2025. 

Standard Deduction

  • The standard deduction has been raised to $12,000 for individual filers and $24,000 for jointly filing married couples. This standard deduction increase will expire after 2025. 

Personal Exemptions

  • Personal exemptions and personal exemption phaseouts have been repealed through 2025. 

Child Tax Credit

  • The child tax credit has been increased to $2,000, and is refundable for up to $1,400 per child. Phase outs for this credit begin at incomes of $400,000. These changes will expire after 2025. 

Estate Tax

  • Beginning in 2018, the exemption amount on the estate tax will raise from $5.49 million to $10 million (indexed for inflation). This provision will expire after 2025. 

Medical Expenses

  • For tax years 2017 and 2018, the floor for medical expense deductions has been lowered to expenses exceeding 7.5 percent of an individual's adjusted gross income. The floor will return to 10 percent (the current floor) in 2019. Initially, House lawmakers had proposed fully eliminating the medical expense deduction.

Educator Expense Deduction

  • The current deduction will remain the same-a proposal in the House version of this legislation would have eliminated the deduction, while a proposal in the Senate version of this legislation would have doubled the deduction. 

Contact

Liz Clark
Senior Director, Federal Affairs
202.861.2553
E-mail

Mary Bachinger
Director, Tax Policy
202.861.2581
E-mail

Megan Schneider
Assistant Director, Federal Affairs
202.861.2547
E-mail