Update 1: The House has passed the bill. Here are changes to current tax code.
UPDATE 2: Senate has passed the bill. Here is how senate version differs from house version.
The US is poised for tax reform and there are ongoing debates about how to make it fair for all. With any changes in tax law or tax codes, there are going to be losers and winners. What about Seniors? How does the new proposed tax bill by the house republicans affect seniors? We will explain.
Medical Deductions – The major potential loss for seniors under the new tax plan
Lawmakers have proposed eliminating medical deductions on itemized returns and this could be a major issue for many seniors who have high medical expenses. Under current law, seniors can deduct medical expenses that exceeds 10% of gross income. It’s a fact of life that older folks have greater medical expenses. Chances are, more senior citizens would be negatively affected by this proposal and face a larger tax bill.
Changes to 401(K)
While there were talks about changing 401(k), lawmakers have finally decided against it. While we don’t know how things will turn out by the time this bill is voted on, as of now, apparently there are going to be no changes to the retirement saving accounts. That’s certainly a positive news for seniors!
AARP has promised to keep an close eye on the bill and notify seniors if they needed to communicate with their senior citizen members.
Other Important Provisions of the bill that might be crucial for seniors one way or another
- The tax brackets will shrink from 7 to just 3; 12, 25 and 35 percent
- Standard deduction will be increased from current $6500 (2021) to $12,000. However, it will eliminate $4050 in personal exemption. In a nutshell, deduction will change from $10,550 to $12,000; a difference of $1450.
- Existing loans will not lose tax benefits but new loans will see changes. Under the new plan, mortgage interest deduction is capped at $500k. The current deduction is capped at mortgages of $1 Million.
- Property tax deductions will be capped at $10,000.
- Ability to deduct state and local taxes, also known as SALT deduction, could disappear. However, many lawmakers from both sides have come out against it especially from the states with high income taxes.
- $300 credit is issued for each parent and adult dependent until 2022.
- Alternative minimum tax will be abolished.
- The estate tax will be eliminated from 2024.
We will be updating this blog if there are new developments and newsworthy changes in the bill especially if we believe many seniors will be affected by the changes. Until then, enjoy crunching the numbers and figure out if the new tax plan is good for you.
Update1 : Important changes on the passed house bill
The house passed the bill, Tax Cuts and Jobs Act by a 227-to-205 vote. Below are quick provisions every senior citizen should be aware of. Please remember, this is not the final version of the bill. Senate still has to act upon it.
Medical deduction will be GONE
Medical deduction was the single most provision every senior citizens were anxious about. Bad news, house bill scrapes that. According to AARP, millions of senior citizens will end up paying more in taxes as a result. From 2021, you will not be able to deduct your medical expenses.
Tax Bracket GOP plan/Trump administration
Tax brackets will be simpler and reduced to 3 brackets. See the chart below to see Tax bracket under GOP Tax plan.
Tax deduction will be raised $12,000 per individual but it will scrap personal exemption of $4050 and $1250 for seniors over the age of 65. In other words, although it looks like different number, seniors will get almost same deduction ($11,650 previously vs $12,000 under new plan) compare to the previous tax code.
What deductions and provisons exists under GOP Tax plan?
There are 3 major deduction which will remain but with slight changes. If you itemize, you can deduct the following.
- Property tax up-to $10,000 a year.
- Charitable donations
- Mortgage interest deduction on loans of $500,000 or less.
- 401(k) exemption stays
- Adoption credit
What provisions are eliminated under GOP tax plan?
Below are the provisions and deductions that are eliminated under the GOP Tax plan:
- Medical expenses
- Moving expenses
- Tax preparation fee
- Theft and loss
You can see more detailed explanation of changes below:
Update 2 : Tax bill passed the senate with few differences from House bill.
The senate now has passed the bill and there are key differences between senate and house version of the tax bill. Below are the important notes on the senate version of the tax bill.
- Senate version repeals individual mandate from the Affordable care act while the House version didn’t touch the healthcare law.
- The senate version will have 7 tax brackets while the House version has only 4 brackets.
- SENATE VERSION ALLOWS TO DEDUCT THE MEDICAL EXPENSES. This is what we believe is most important for vast number of seniors.
Those are some of the important changes on the senate version of the tax bill. Please note that senate version too would eliminate SALT deduction and you can only deduct up to $10,000 in property taxes. The medical deduction intact sounds promising for senior citizens, but you will have to wait and find out how the final version would look like.
What Happens next?
Currently House and Senate are trying to reach a deal on the final version of the bill. That then would be the actual bill after being signed into law. We will update when the final version is released and will point out how it will affect senior citizens! Stay tuned!
Senate and House conference releases final version of the bill
The final version of the bill is now released. This will become law if/when it is voted on and signed by the president. Currently, there are enough vote for its passage. There are many changes to the current tax code but we will be focusing on the provisions that will affect senior citizens and elderly folks.
See a screenshot from CNBC that differentiates between House and GOP version of the bill.
This is a very good news for seniors and elderly people with lots of medical deductions. The new tax bill will allow you to get medical deduction just like before. This is a really good news for seniors!
Repeals the Healthcare Mandate
This could indirectly affect senior citizens. This tax bill repeals individual mandate provision from Affordable care act (ACA), also widely known as Obamacare. ACA required people to get health insurance or pay the fines to help keep the premiums from rising for everyone. After repealing this requirement, many younger and healthier folks will choose not to get health insurance and that will force insurance companies to raise premiums for other to make up the loss. AARP claims this fallout could mandatory trigger spending cuts including Medicare.
Personal exemptions will be gone. Individuals can deduct $12,000 and married couple can deduct $24,000.
Mortgage deduction for current homeowners will not change but new homeowners can deduct on Mortgages of up to $750,000 only.
Ability to deduct state and local taxes and/or property taxes are capped at $10,000. For example, if you paid $5000 in property taxes and $7000 in state income taxes, you can write off $10,000.
Charitable deductions are allowed unchanged until 2025. After that, limits will be placed on how much you can deduct.
Tax Brackets 2021 Under New Tax Plan
The new tax brackets will be 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
|37%||$500,000 and up||$600,000 and up|
References and other important articles we recommend you to read:
Final Version of the Bill has passed the House of representatives
On December 19, 2017, the house of representatives has passed the bill mostly along party lines. Almost all republicans voted for the bill and most democrats voted against it. At this point, the bill is headed to the senate for vote. The whole country is anxiously waiting for the final outcome and we will update you as soon as there is an update! Stay tuned!
Final version of the bill has passed the Senate
Senate now has passed the final version of the bill. The bill was supposed to be ready to head to the president’s desk but due to minor legislative errors, there needs to be minor corrections and House will be re-voting on the bill. But this is only going to be mere formality. The passage of the final version of the bill is now virtually guaranteed. We will update you when the bill is signed and actually becomes a law of the land. Stay tuned!