Republicans release their final tax bill — here's what's in it

  • Republicans on Friday released the final text of the compromise version of their massive tax bill.
  • The compromise bill, crafted by GOP members of the congressional tax committees, features a few changes from the House and Senate versions.
  • Republicans leaders want to vote on the bill as early as Tuesday.

Republicans released the final version of their massive tax bill on Friday, setting up a frantic stretch to pass the plan through Congress next week.

The bill is a compromise between the House and Senate versions and assembled by Republican members mostly from the committees that wrote them.

The legislation would make sweeping changes to the corporate and individual tax systems. Here are some ways the bill differs from the House and Senate versions:

  • It would give corporations a slightly less generous tax cut. The corporate rate would be slashed to 21% from the current 35%. The House and Senate versions had proposed 20%.
  • It would increase the refundability of the child tax credit. The bill would increase the child tax credit to $2,000 from the current $1,000, like the Senate version — but the level to which the credit would be refundable would increase to $1,400 from the Senate's proposed $1,100. That change is aimed at Sen. Marco Rubio, who on Thursday threatened to vote against the bill if the credit were not made more generous.
  • It would lower the top marginal tax rate. It would be 37% instead of the current 39.6%. That's more generous than the 38% proposed in the Senate version.
  • It would adjust the individual tax brackets.
    • 10%: $0 to $9,525 of taxable income for an individual; $0 to $19,050 for married joint filers
    • 12%: $9,526 to $38,700 individual; $19,051 to $77,400 joint
    • 22%: $38,701 to $82,500 individual; $77,401 to $165,000 joint
    • 24%: $82,501 to $157,500 individual; $165,001 to $315,000 joint
    • 32%: $157,501 to $200,000 individual; $315,001 to $400,000 joint
    • 35%: $200,001 to $500,000 individual; $400,001 to $600,000 joint
    • 37%: over $500,000 individual; over $600,000 joint

5 ridiculously simple ways to lower your taxes
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5 ridiculously simple ways to lower your taxes

1. Contribute more to a retirement account

If you put money into a traditional IRA or 401(k) plan, you'll benefit in two ways. First, you'll get the financial security that comes with having savings available in retirement, and the earlier in life you start contributing, the more opportunity you'll give your money to grow. But you'll also benefit from a tax perspective, because the amount you contribute will go in pre-tax. What this means is that if you make $50,000 a year but put $5,000 into your 401(k), you'll only pay taxes on $45,000 of income. Talk about a win-win! via Getty Images

2. Donate items you no longer use

Is your basement or hall closet overflowing with clothing, tools, and gadgets you don't need? If you donate those items to a registered charity, you'll get to claim a deduction on your taxes. All you need to do is obtain an itemized receipt of what you give away to verify your donation, and you're all set.

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3. Open a flexible spending account

Medical care can be a huge expense for some families. Americans spent an estimated $416 billion on out-of-pocket medical expenses in 2014, and that number is expected to climb to $608 billion by 2019. But if you sign up for a healthcare flexible spending account (FSA), you'll get to pay for eligible medical expenses, like copays and prescription drugs, with pre-tax dollars. For 2016, you can allocate up to $2,550 to an FSA, which means that if your effective tax rate is 25%, you'll save $637 by contributing the maximum. But don't make the mistake of overfunding your FSA. The money you contribute goes in on a use-it-or-lose-it basis, so if you put in the full $2,550 but only rack up $2,000 in eligible expenses, you'll have to kiss that remaining $550 goodbye.

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4. Use pre-tax dollars to pay for child care

Childcare is one of the greatest expenses families with young children face. The average American household currently spends $10,192 a year on full-time day care center care, $7,700 a year on regular after-school babysitting, and $28,900 on a full-time nanny. The good news, however, is that you can shave a fair amount of money off your tax bill by opening a dependent care FSA. Similar to a healthcare FSA, a dependent care FSA allows you to allocate pre-tax dollars to pay for eligible child care expenses, which include preschool and summer camp. For 2016, a couple filing a joint tax return can contribute up to $5,000 a year in pre-tax dollars. If you max out that limit and your effective tax rate is 25%, you'll save $1,250 in taxes. The only catch is that like a healthcare FSA, if you end up spending less during the year on eligible expenses than what you put in, you'll forfeit your remaining balance.

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5. Sign up for commuter benefits

Traffic and rail delays can be a huge source of daily aggravation. But if your commute can't serve the purpose of helping you relax and ease in and out of your workday, it can at least help you lower your taxes. All you need to do is sign up for commuter benefits through your employer, and you'll get to use pre-tax dollars to pay for the costs you already incur. For 2016, you can allocate up to $255 per month in pre-tax dollars for transit and up to $255 a month for parking for a combined total of $510. If you hit that maximum and your effective tax rate is 25%, you'll save $1,530 a year on your taxes.

Nobody likes paying taxes, and there's certainly no reason to pay more than you have to. With a few smart moves, you can lower the amount you ultimately fork over to the IRS and keep more money in your pocket.

Compassionate Eye Foundation/Steven Errico via Getty Images

  • It would allow people to count income or sales tax toward the state and local tax deduction. The House and Senate versions proposed people be able to deduct up to $10,000 in state property taxes from their federal tax bill. The compromise bill would allow people to deduct up to $10,000 in a combination of state and local property, income, and sales tax. It's unclear whether that figure is the same for joint and individual filers.
  • It would give pass-through businesses a deduction. Pass-through businesses like limited liability corporations in which the owner books the profits as income would be allowed to deduct 20% of their earnings — like the Senate version, but down from its proposed 23% deduction. The benefit would also phase out starting at $315,000 for couples, down from $500,000 in the Senate version.
  • It would double the threshold to qualify for the estate tax. It's currently $5.6 million. But the increase would expire, along with all the individual tax changes, in 2026. Many Republicans wanted to do away with the tax entirely.
  • It would not repeal the Johnson amendment. That prevents nonprofit organizations from donating directly to political campaigns, and the House and Senate versions called for repealing it. Critics had argued that would allow nonprofits to become de facto tax-exempt political organizations.
  • It would lower the threshold for the medical expense deduction for two years.The House version called for repealing the deduction, which allows people with medical expenses above 10% of their income to deduct costs beyond that. The compromise bill lowers that level to 7.5%. Sen. Susan Collins requested this change.

Republican leaders have said they plan to hold a vote on the compromise bill early next week, with a goal of President Donald Trump signing it by Wednesday.

Despite concerns from some senators, it appears Republican leadership has secured enough votes to pass the bill.

After initially withholding their support, Sens. Marco Rubio and Bob Corker said on Friday that they would vote for the bill. Corker was the only Republican to vote against the Senate version of the legislation.

SEE ALSO: Marco Rubio threatens to vote against the GOP tax bill unless leaders meet demands

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