A 1,101-page, Republican-backed overhaul of the federal tax code was signed into law Friday by President Donald Trump. The Tax Cuts and Jobs Act, which passed the House of Representatives 224–201 and Senate 51–49 with no Democratic support in either chamber, is being touted as the most significant tax code change in decades.
Houston-area Rep. Kevin Brady, R-The Woodlands, chairman of the House Committee on Ways and Means, said in a statement that the measure would be a boost to the economy.
“This legislation will deliver real relief to hardworking families in my district and across the country who will be able to keep more of the money they earn,” he said. “It will create more opportunities for workers to find that next new job, earn that long-overdue raise, and get ahead.”
But how much relief the bill brings is dependent upon various factors, including what people earn, how many children they have, and whether they use certain deductions. Here are some highlights of the new law.
New individual income tax thresholds
Married and other tax thresholds can be found in the Joint Explanatory Statement of the Committee of Conference.
These changes would be phased out after Dec. 31, 2025, and would affect approximately 120 million tax returns, according to the Tax Complexity Analysis. That would equal about 84.4 percent of the 142.2 million tax returns filed this year as of July, according to the IRS.
To put that in perspective, Texans filed 13.5 million individual income and individual estimated income tax returns in fiscal year 2015-16, according to the most recent data available from the IRS’s Statistics of Income program.
Qualified business income deduction
Now until Jan. 1, 2026, individuals can deduct 20 percent of qualified business income from a partnership, S corporation, or sole proprietorship, as well as 20 percent of aggregate qualified REIT dividends, qualified cooperative dividends, and qualified publicly traded partnership income. Some caveats exist for certain agricultural or horticultural cooperatives.
This change is expected to affect more than 10 percent of small business tax returns. Texans filed 856,475 partnership, S-Corp and other corporate tax forms in FY 2016 while the state had 2.6 million small businesses this year, according to the U.S. Small Business Administration.
Child tax credit increase
The new law increases the child tax credit from $1,000 to $2,000, and no more $1,400 can be refunded per child. Each qualifying child must have a Social Security number and after Dec. 31, 2025, the change will phase out.
It is expected to affect about 90 million tax returns, but the Center for Budget and Policy Priorities, a left-leaning think tank, said about 10 million low-income children will see only as much as $75 more per family.
Estate tax threshold increased
The limit for filing estate taxes was raised from estates worth at least $5.49 million for individuals and $11 million for couples, to those worth at least $11.2 million for individuals and $22.4 million for couples.
In FY 2016, Texans filed 282,470 estate, estate and trust income; and estate and trust estimated tax returns. Meanwhile, the state’s population in 2016 was nearly 27 million, according to the U.S. Census Bureau.
Other changes to the law
Obamacare individual mandate removed
Individuals without health insurance will no longer be required to pay a penalty fee. According to the Texas Medical Association, 15 percent of the state was uninsured in 2016.
Mortgage deduction decreased for new loans
The limit for deductions for mortgage debt drops from $1.1 million to $750,000 for any debt incurred after 2017. Also, homeowners may not claim a deduction for existing and new interest on home equity debt starting Jan. 1, but these changes expire after 2025, according to the Annenberg Public Policy Center’s FactCheck.org.
In 2016, the average mortage debt for Texas residents was $159,195, according to Experian.com.
Individual state and local income tax deduction eliminated
This deduction is eliminated until 2026, affecting approximately 44 million tax returns. However, Texas is one of seven states that do not collect income taxes.