Would Trump’s Tax Policy Help More People If He Gets a Second Term?
When Donald Trump introduced the Tax Cuts and Jobs Act in 2017, many Americans reported receiving smaller-than-expected tax refunds after it went into effect. The IRS reported that the average federal tax refund for 2019 tax filings was down just $55 from 2018, according to OhioCPA.com.
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But for couples like Andy Kraft and Amy Elias of Portland, Oregon, who typically expect a small refund of a few hundred dollars, finding out they owed more than $10,000 in 2019 came as a shock, per KGW.
After taxpayers and the tax professionals have dealt with, and adapted to, the effects of the TCJA for several years, the law is set to expire in 2025. But, if Trump gets elected into office again, he has vowed to extend the law.
In theory, Trump’s tax cuts should have benefited more people than they hurt. But if you didn’t adjust your withholding tax, you might have faced hefty tax bills in recent years. With a better understanding of policies under the TCJA, you might be able to leverage the rules in the future to reduce your tax bill if Trump serves a second term as President of the United States.
Here are some of the changes that will remain in effect if Trump has the power to extend the TCJA beyond 2025.
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Lower Tax Rates for Some Brackets
One of the key changes in the TCJA was reducing the marginal tax rates for most tax brackets. While the amount of income that defines your tax bracket changes annually, marginal tax rates were reduced or remained the same under the TCJA.
Those in the lowest tax bracket still pay 10% under the TCJA, but those in the second bracket pay 12%, rather than 15%. Those in the third bracket pay 22% instead of 25%, while those in the fourth bracket pay 24% rather than 28%.
Essentially, the largest tax cuts came to lower- and middle-income earners, with those making between roughly $11,000 and $182,000 saving 3% to 4%. Those in the fifth tax bracket, with income up to the low $200,000s, received a 1% cut in their marginal tax rate, while those earning mid-$200,000s up to mid-$500,000s did not receive a cut at all. The highest earners, making at least half a million dollars annually, saw a tax cut from 39.60% to 37%.
All taxpayers benefited from the tax cuts, however, since the U.S. uses a progressive tax system, where you only pay the marginal rate on income that exceeds each threshold. In other words, in 2023, the first $11,000 of your income is taxed at the 10% rate, no matter how much you earn.
Higher Standard Deduction
In an effort to minimize people claiming tax deductions they don’t deserve, the TCJA nearly doubled the standard deduction amount. This simplified tax filing and encouraged more people to take the standard deduction rather than itemizing taxes, which leaves more room for errors or cheating.
Meanwhile, the law limited itemized deductions but kept popular ones such as the mortgage interest deduction and charitable contribution deductions.
Higher Child Tax Credit
The TCJA also doubled the child tax credit to $2,000 per child, also allowing a $500 credit for other dependents. The CTC is fully refundable, which means that even if you don’t owe taxes, it can add to the amount of your refund.
Will the TCJA Benefit You in 2026?
If Trump’s wins the presidency and extends the TCJA, American taxpayers have the benefit of experience with this tax law. Many workers were blindsided when employers began taking out less withholding tax. That left more money in workers’ paychecks, but left them with higher tax bills come April.
Ideally, you don’t want to give the government an interest-free loan on your money by taking too much money out of your paycheck. But if you found yourself with a tax bill in recent years, you should review your W-4 form and adjust withholding to, ideally, come out even next April.
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This article originally appeared on GOBankingRates.com: Would Trump’s Tax Policy Help More People If He Gets a Second Term?
