The Tax Cuts and Jobs Act (), is a United States federal law that amended the Internal Revenue Code of 1986, and also known as the Trump Tax Cuts, but officially the law has no short title, with that being removed during the Senate amendment process. The New York Times described the TCJA as "the most sweeping tax overhaul in decades". Studies show that the TCJA worsened federal debt and increased after-tax incomes, disproportionately raising incomes for the most affluent. It led to an estimated 11% increase in corporate investment, but its effects on economic growth and median wages were smaller than expected and modest at best.
Major elements of the changes include reducing tax rates for corporations and individuals, increasing the standard deduction and family tax credits, eliminating personal exemptions and making it less beneficial to itemize deductions, limiting deductions for state and local income taxes and property taxes, further limiting the mortgage interest deduction, reducing the alternative minimum tax for individuals and eliminating it for corporations, doubling the estate tax exemption, and reducing the penalty for violating the individual mandate of the Affordable Care Act (ACA) to $0.
Most of the changes introduced by the bill went into effect on January 1, 2018, and did not affect 2017 taxes. Many tax cut provisions contained in the TCJA, notably including individual income tax cuts, such as the changes to the standard deduction in §63 of the IRC, were scheduled to expire in 2025 while many of the business tax cuts were set to expire in 2028. However, in 2025, Congress passed the One Big Beautiful Bill Act, which extends most provisions of the TCJA beyond their original expiration dates. Extending the cuts have caused economists across the political spectrum to worry it could boost inflationary pressures and worsen America's fiscal trajectory. The Congressional Budget Office estimated that extending the expiring provisions would add $4.6 trillion in deficits over 10 years.
Plan elements
Individual income tax + Single filers (2018)Under previous lawUnder TCJARateIncome bracketRateIncome bracket10%$0–$9,52510%$0–$9,52515%$9,525–$38,70012%$9,525–$38,70025%$38,700–$93,70022%$38,700–$82,50028%$93,700–$195,45024%$82,500–$157,50033%$195,450–$424,95032%$157,500–$200,00035%$424,950–$426,70035%$200,000–$500,00039.6%$426,700 and up37%$500,000 and up + Married filing jointly (2018)Under previous lawUnder TCJARateIncome bracketRateIncome bracket10%$0–$18,65010%$0–$19,05015%$18,650–$75,90012%$19,050–$77,40025%$75,900–$153,10022%$77,400–$165,00028%$153,100–$233,35024%$165,000–$315,00033%$233,350–$416,70032%$315,000–$400,00035%$416,700–$470,70035%$400,000–$600,00039.6%$470,700 and up37%$600,000 and up
Under the law, there were numerous changes to the individual income tax, including changing the income level of individual tax brackets, lowering tax rates, and increasing the standard deductions and family tax credits while itemized deductions are reduced and the personal exemptions are eliminated.
Most individual income taxes are reduced, until 2025. The number of income tax brackets remain at seven, but the income ranges in several brackets have been changed and most brackets have lower rates. These are marginal rates that apply to income in the indicated range as under current law (i.e., prior Public Law 115-97 or the Act), so a higher income taxpayer will have income taxed at several different rates. A different inflation measure (Chained CPI or C-CPI) will be applied to the brackets instead of the Consumer Price Index (CPI), so the brackets increase more slowly. This is effectively a tax increase over time, as people move more quickly into higher brackets as their income rises; this element is permanent.
The standard deduction nearly doubles for married couples, from $12,700 to $24,000. For single filers, the standard deduction will increase from $6,350 to $12,000. About 70% of families choose the standard deduction rather than itemized deductions; this could rise to over 84% if doubled. The personal exemption is eliminated—this was a deduction of $4,050 per taxpayer and dependent, unless it is in an estate or trust.
The child tax credit (CTC) is doubled from $1,000 to $2,000, $1,400 of which will be refundable. There is also a $500 credit for other dependents, versus zero under current law. The lower threshold for the high-income phaseout for the CTC changes from $110,000 AGI to $400,000 for married filers.
Mortgage interest deduction for newly purchased homes (and second homes) was lowered from total loan balances of $1million under current law to $750,000. Interest from home equity loans (aka second mortgages) is no longer deductible, unless the money is used for home improvements.
The deduction for state and local income tax, sales tax, and property taxes ("SALT deduction") will be capped at $10,000. This has more impact on taxpayers with more expensive property, generally those who live in higher-income areas, or people in states with higher rates for state tax.Reilly, Peter J. (January 8, 2018). "Laws Of Tax Planning Updated For Tax Cuts And Jobs Act". Forbes.
The act zeroed out the federal tax penalty for violating the individual mandate of the Affordable Care Act, starting in 2019. (In order to pass the Senate under reconciliation rules with only 50 votes, the requirement itself is still in effect). This is estimated to save the government over $300billion, because up to an estimated 13million fewer people will have insurance coverage, resulting in the government giving fewer tax subsidies. It is estimated to increase premiums on the health insurance exchanges by up to 10%. It also expands the amount of out-of-pocket medical expenses that may be deducted by lowering threshold from 10% of adjusted gross income to 7.5%, but only for 2017 (retroactively) and 2018. Effective January 1, 2019, the threshold will increase to 10%."Tax Cuts and Jobs Act lowers medical expense deduction threshold". Capata Certified Public Accountants. 2018.
No changes are made to major education deductions and credits, or to the teacher deduction for unreimbursed classroom expenses, which remains at $250. The bill initially expanded usage of 529 college savings accounts for both K–12 private school tuition and homeschools, but the provision regarding homeschools was overruled by the Senate parliamentarian and removed. The 529 savings accounts for K-12 private school tuition provision was left intact.Egger, Andrew (December 19, 2017). "House Passes Tax Reform, But Will Have to Revote". The Weekly Standard. Retrieved December 20, 2017.
Taxpayers will only be able to deduct a casualty loss if it occurs in a federally declared disaster area.McRuer, Scott (February 9, 2018). "New Tax Law Cuts Personal Casualty Loss Deduction". McRuer CPAs.
Alimony paid to a former spouse will no longer be deductible by the payer, and alimony payments will no longer be included in the recipient's gross income. This effectively shifts the tax burden of alimony from the recipient to the payer, increases the amount of tax collected on the income transferred as alimony, and simplifies the audit trail for the IRS. This provision is effective for divorce and separation agreements signed after December 31, 2018.Rickert, Kelly Chang (January 4, 2018). "Tax Cuts and Jobs Act and Alimony After 2018". Law and Mediation Offices of Kelly Change, PLC.
Employment-related moving expenses will no longer be deductible, except for moves related to active-duty military service.Swavely, Lauren (February 7, 2018). "Tax Cuts and Jobs Act – Significant Changes to Moving Expense Deductions". Herbein + Company, Inc.
The miscellaneous itemized deduction, including tax-deductions for tax-preparation fees, investment expenses, union dues, and unreimbursed employee expenses, are eliminated.Kocher, Chris (January 19, 2018). "Tax Cuts and Jobs Act ... Miscellaneous Itemized Deductions ". LCI Taxes, LLC.
Fewer people will pay the Alternative minimum tax because the act increases the exemption level from $84,500 to $109,400 for married taxpayers filing jointly and from $54,300 to $70,300 for single taxpayers.Sahadi, Jeanne (December 22, 2017). "What's in the GOP's final tax plan". CNN.
The act repeals the ability to recharacterize Roth conversions."Final GOP Tax Plan Summary: Tax Strategies Under TCJA 2017". Nerd's Eye View. December 18, 2017. Retrieved December 29, 2017."The Tax Cuts and Jobs Act of 2017". Lexology. December 22, 2017. Retrieved December 29, 2017.
The act exempts the discharge of certain student loans due to the death or total permanent disability of the borrower from taxable income. This provision applies only to debt discharged during tax years 2018 through 2025.
The act now taxes survivors benefits that were allocated to the children of a deceased military service member as if they were for a trust or estate, which can subject them to an income tax rate of up to 37%.Clark, James (April 23, 2019). "Trump's tax cut was a disaster for some Gold Star families, but it's a symptom of a larger problem ". Task & Purpose.
Estate tax
For deaths occurring between 2018 and 2025, estates that exceed $11.2million are subject to a 40% estate tax at time of death, increased from $5.6million previously. For a married couple aggregating their exemptions, an estate exceeding $22.4million is subject to a 40% estate tax at time of death.Borchers, Tim (January 14, 2018). "Estate and Gift Taxes Under the New 2018 Tax Law". Borchers Trust Law Group, PC.
Corporate tax
The corporate tax rate was changed from a tiered tax rate ranging from 15% to as high as 39% depending on taxable income to a flat 21%, while some related business deductions and credits were reduced or eliminated. The Act also changed the U.S. from a global to a territorial tax system with respect to corporate income tax. Instead of a corporation paying the U.S. tax rate for income earned in any country (less a credit for taxes paid to that country), each subsidiary pays the tax rate of the country in which it is legally established. In other words, under a territorial tax system, the corporation saves the difference between the generally higher U.S. tax rate and the lower rate of the country in which the subsidiary is legally established. Bloomberg journalist Matt Levine explained the concept, "If we're incorporated in the U.S. [under the old global tax regime], we'll pay 35 percent taxes on our income in the U.S. and Canada and Mexico and Ireland and Bermuda and the Cayman Islands, but if we're incorporated in Canada [under a territorial tax regime, proposed by the Act], we'll pay 35 percent on our income in the U.S. but 15 percent in Canada and 30 percent in Mexico and 12.5 percent in Ireland and zero percent in Bermuda and zero percent in the Cayman Islands."Levine, Matt (August 25, 2014). "Burger King May Move to Canada for the Donuts ". Bloomberg. In theory, the law would reduce the incentive for tax inversion, which is used today to obtain the benefits of a territorial tax system by moving U.S. corporate headquarters to other countries.Korving, Stephen (January 2, 2018). "How tax cuts and job act will affect you and your business ". Inside Business. The Hampton Roads Business Journal.
One-time repatriation tax of profits in overseas subsidiaries is taxed at 8%, 15.5% for cash. U.S. multinationals have accumulated nearly $3trillion offshore, much of it subsidiaries in tax-haven countries. The Act may encourage companies to bring the money back to the U.S. at these much lower rates.
The Corporate Alternative Minimum Tax was eliminated.