Senate Republicans released a tax reform proposal on the heels of the news that the House Ways and Means Committee has advanced its tax reform bill out of Committee to go before the full House for a vote.
These are some key features of the Senate’s bill and how it varies from the House version.
401(k) and TSP
Both the House and Senate versions of the tax bills would not make any changes to allowable 401(k) contributions.
Although never specifically mentioned, any reductions to the allowed amounts to 401(k) contributions presumably would have affected federal employees who contribute to the Thrift Savings Plan which is the government’s version of a 401(k) retirement savings program.
House Republicans were rumored to have previously been considering cutting the annual contribution amount to retirement savings plans to $2,400 per year, a substantial drop from the current $18,500 per year, presumably in an effort to push retirement savers to tax-free growth found in Roth accounts in which participants contribute after tax dollars but pay no taxes upon withdrawal at retirement.
Individual Tax Brackets
The Senate bill keeps seven tax brackets in place whereas the House reduces them to four. The Senate version has rates of 10, 12, 22.5, 25, 32.5, 35 and 38.5 percent. The House keeps the current 39.6% top tax rate in its bill along with rates of 12, 25 and 35 percent.
Mortgage Interest Deduction
The House caps the mortgage interest deduction at $500,000 whereas the Senate retains it for mortgage balances of up to $1 million.
State and Local Tax Deduction
The Senate bill eliminates the state and local tax deduction whereas the House version allows deducting up to $10,000 in property taxes.
Child Tax Credit
Both versions increase the child tax credit. The Senate version takes it up to $1,650 and the House version sets it at $1,600. It currently is $1,000 per child.
Corporate Tax Rate
The Senate bill would lower the corporate tax rate to 20%, however, it delays doing so until 2019. The House version would begin lowering the corporate tax rate starting in 2018.
Both tax bills are likely to undergo significant changes as they work their way through the legislative process.