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How the Trump Tax Plan Could Affect You

President Trump signed the Tax Cuts and Jobs Act, into law in December 2017. This bill largely didn’t affect individual income taxes until the 2018 tax year, which you filed in early 2019. How exactly the Trump tax plan affects you depends on your income, your current filing status and the deductions you take. But because of tax code changes, you might want to work with a financial advisor to optimize your tax strategy for your financial goals. Take a look at the following guide to help you better understand the main features of the new tax plan.

A Brief History of the New Tax Plan

In 2017, House Republicans and President Trump worked to introduce a tax bill that would simplify the tax system. They unveiled their long-awaited tax bill, the Tax Cuts and Jobs Act (TCJA), on Nov. 2, 2017. The bill called for sweeping changes to the current tax law.

The House passed the final version of the bill on Dec. 20, 2017, with a final tally of 224-201. Twelve House GOP members and all Democrats opposed the legislation. Originally, the House passed the bill on Dec. 19, but a re-vote was necessary because several provisions of the bill reportedly violated Senate rules and needed to be removed. The Senate passed the corrected version of the bill in the early morning hours of Dec. 20, voting 51-48 along party lines. President Trump then signed the bill into law on Dec. 22, 2017.

Most of the tax changes in the TCJA went into effect in January 2018, for the 2018 tax year. That means the changes didn’t affect many 2017 tax returns (you filed 2017 taxes in early 2018). Employees didn’t see changes in their paycheck withholding until February 2018.

New Trump Tax Brackets – Still Seven Total

Trump’s tax plan originally called for cutting the number of tax brackets in the federal income tax system from seven to four, but the final version of the bill maintains the seven brackets. It does, however, change their rates.

Previously, the tax brackets went up to a top rate of 39.6%. The new tax brackets, which applied as of January 2018, have rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%. These are the rates that determine your tax bill and still apply in 2020.

Keep in mind that your 2020 federal tax filing is due May 17, 2021, not April 15, 2021. The IRS pushed back the deadline because of pandemic-related complications in meeting the traditional deadline.

The table below breaks down the brackets for single and joint filers. If you use have a different filing status, make sure to read our full breakdown of the current tax brackets.

Federal Income Tax Bracket for 2020 (filed by May 17, 2021)

 Tax Rate Single Married Filing Jointly Married Filing Separately Head of Household
10% $0 – $9,875 $0 – $19,750 $0 – $9,875 $0 – $14,100
12% $9,876 – $40,125 $19,751 – $80,250 $9,876 – $40,125 $14,101 – $53,700
22% $40,126 – $85,525 $80,251 – $171,050 $40,126 – $85,525 $53,701 – $85,500
24% $85,526 – $163,300 $171,051 – $326,600 $85,526 – $163,300 $85,501 – $163,300
32% $163,301 – $207,350 $326,601 – $414,700 $163,301 – $207,350 $163,301 – $207,350
35% $207,351 – $518,400 $414,701 – $622,050 $207,351 – $518,400 $207,351 – $518,400
37% $518,401+ $622,051+ $518,401+ $518,401+

Federal Income Tax Bracket for 2021 (filed in April 2022)

 Tax Rate Single Married Filing Jointly Married Filing Separately Head of Household
10% $0 – $9,950 $0 – $19,900 $0 – $9,950 $0 – $14,200
12% $9,951 – $40,525 $19,901 – $81,050 $9,951 – $40,525 $14,201 – $54,200
22% $40,526 – $86,375 $81,051 – $172,750 $40,526 – $86,375 $54,201 – $86,350
24% $86,376 – $164,925 $172,751 – $329,850 $86,376 – $164,925 $86,351 – $164,900
32% $164,926 – $209,425 $329,851 – $418,850 $164,926 – $209,425 $164,901 – $209,400
35% $209,426 – $523,600 $418,851 – $628,300 $209,426 – $314,150 $209,401 – $523,600
37% $523,601+ $628,301+ $314,151+ $523,601+

The Trump Tax Plan Increased the Standard Deduction

There are deductions to consider as well. The new tax plan nearly doubled the standard deduction for all filers. If you’re a single filer or if you’re married filing separately, your standard deduction for 2020 is $12,400. Joint filers have a deduction of $24,800 and heads of household get $18,650.

Single Filers Married Filing Jointly
$12,400 $24,800
Single Filers Married Filing Jointly
$12,550 $25,100

Big Changes to State and Local Tax Deductions (SALT)

Trump tax plan

During initial talks, Republicans called for eliminating almost all itemized deductions, including state and local tax (SALT) deductions, but keeping those for charitable deductions and mortgage interest. Ultimately, the TCJA capped SALT deductions to $10,000 ($5,000 for married taxpayers filing separately).

Previously, taxpayers who itemized could deduct their state and local income, property and general sales tax payments on their federal tax returns. This was especially useful for residents of high-tax states like California and New Jersey. If you think this change could alter your taxes, make sure you read up on the new rules of SALT deductions.

Trump Tax Plan Changes to the Mortgage Interest Deduction

For tax year 2017, homeowners who itemized their deductions could deduct their mortgage interest payments on mortgages up to $1 million. For 2018 and beyond, the limit on this deduction is $750,000. If you’re married filing separately, your limit is $375,000 in mortgage interest.

Child Tax Credits Saw Big Changes

Under the new tax plan, the Child Tax Credit (CTC) is worth $2,000 per child under 17. The credit used to be $1,000. The credit is now available to more taxpayers, too. Previously, the credit began to phase out once you had income of $75,000 ($110,000 for joint filers). You now qualify to receive the full credit if your income is up to $200,000 ($400,000 for joint filers). The CTC is also refundable now up to $1,400. That means if the CTC brings your tax liability below zero, the IRS will send you a refund for the credit, up to $1,400. It was not refundable in the past so if it brought your liability below zero, you simply would owe nothing and would get no refund.

The adoption credit also remains in effect and is worth up to $13,750 per child.

Trump Tax Plan Doubles the Estate Tax Deduction

How the Trump Tax Plan Could Affect You

The estate tax (40%) applies when multimillionaires transfer property to heirs. The Trump tax plan doubles the estate tax deduction from the 2017 value of $5.49 million for individuals up to $11.18 million. This higher limit allows wealthy families to transfer more money tax-free to their heirs.

Trump Tax Plan Lowers Corporate Tax Rate

Before 2018, the corporate tax rate was 35%. The TCJA reduced the rate to 21%. This flat rate applies to all corporate income (of at least $1).

Other Changes for Tax Year 2020

  1. There is no more individual mandate penalty. If you were required to have health insurance under the Affordable Care Act but weren’t covered and didn’t qualify for an exemption in 2019, you no longer owe a penalty.
  2. You can no longer deduct alimony payments from your taxes.
  3. There are now higher retirement plan contribution limits. 401(k) base contribution limits increased from $19,000 to $19,500, while catch-up contributions allow an additional $6,500. IRA base contributions for 2020 and 2021 is $6,000 for taxpayers under 50, and catch-up contributions allow for an additional $1,000.
  4. HSA contribution limits also increase. The limit for self-only coverage increased from $3,500 to $3,550, while family coverage limits increased from $7,000 to $7,100.

Bottom Line

The U.S. tax code isn’t always the most straightforward and things can get more confusing when there are changes from one year to the next. The Tax Cuts and Jobs Act made some big changes to the tax code, particularly to deductions and the tax brackets. It’s a good idea to review the new changes, especially if you usually itemize deductions. (We also took a look at who should itemize under the new tax plan.)

Tips for Filing Your Taxes

  • A financial advisor can help optimize your tax strategy for your financial goals. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors who can help you achieve your financial goals, get started now.
  • When the tax code changes, it’s a good idea to use a good tax filing service. We did our annual roundup of the best tax filing software so that you can get through this tax season as painlessly as possible.
  • If you want to see whether you’ll get a tax refund or have to pay a tax bill, SmartAsset’s tax return calculator can help you plan ahead.

Photo credit: © Mitchell, ©, ©

Amelia Josephson Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.
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