16 November 2017

Senate Finance Committee modifies tax reform proposal

By Alistair M. Nevius 
November 15, 2017


After two days of markup, the Senate Finance Committee released a revised chairman’s mark of its version of the Tax Cuts and Jobs Act late on Tuesday. Among the many changes, the revised bill would sunset almost all tax changes affecting individuals after Dec. 31, 2025. This allows the bill to conform to the Senate’s budget reconciliation process, which requires bills to not increase the federal deficit for more than 10 years. The repeal of the alternative minimum tax would also sunset after 2025.

Individual changes that are indexed for inflation would not sunset; nor would changes affecting businesses.

The Senate Finance Committee is reportedly planning to vote on the marked-up bill later this week.

Here are highlights of some of the changes.


Tax rates: The revised mark would modify the individual income tax rates to be the following:

Single taxpayers and married taxpayers filing separately

 Taxable income over

 But not over   Is taxed at
 $0  $9,525  10%
 $9,525  $38,700  12%
 $38,700  $70,000  22%
 $70,000  $160,000  24%
 $160,000  $200,000  32%
 $200,000  $500,000  35%
 $500,000   38.5% 

Heads of households

 Taxable income over  But not over  Is taxed at
 $0  $13,600  10%
 $13,600  $51,800  12%
 $51,800  $70,000  22%
 $70,000  $160,000  24%
 $160,000  $200,000  32%
 $200,000 $500,000   35%
$500,000    38.5% 


Married taxpayers filing joint returns and surviving spouses

 Taxable income over  But not over   Is taxed at
 $0  $19,050  10%
 $19,050  $77,400  12%
 $77,400  $140,000  22%
 $140,000  $320,000  24%
 $320,000  $400,000  32%
 $400,000  $1,000,000  35%
 $1,000,000    38.5%


Estates and trusts

 Taxable income over  But not over   Is taxed at
 $0  $2,550  10%
 $2,550  $9,150  24%
 $9,150  $12,500  35%
$12,500     38.5%


Child tax credit: The child tax credit would be increased to $2,000, and the threshold for the phaseout would start at $500,000 for married taxpayers filing joint returns.

Passthrough income deduction: The modified bill would continue to allow individuals to deduct 17.4% of “domestic qualified business income” passed through from a partnership, S corporation, or sole proprietorship. The amount of the deduction would generally be limited to 50% of the taxpayer’s allocable or pro rata share of W-2 wages of the partnership, S corporation, or sole proprietorship. However the W-2 wage limit would not apply to taxpayers with taxable income not exceeding $500,000 for married taxpayers filing jointly and $250,000 for other individuals. The W-2 wage limit would be phased in for taxpayers whose taxable income exceeds these amounts.

The deduction would not apply to specified service businesses, except in the case of a taxpayer whose taxable income does not exceed $500,000 (for married individuals filing jointly; $250,000 for other individuals). The benefit of the deduction for service providers would be phased out for taxpayers whose taxable income exceeds these amounts.

Individual mandate: In a new measure, the bill would reduce the penalty under Sec. 5000A for failure to maintain health insurance coverage to zero – effectively repealing the so-called individual mandate from the Patient Protection and Affordable Care Act, P.L. 111-148. This would be effective for months beginning after Dec. 31, 2018.

Tax returns for those over 65: The bill would require the IRS to publish a new Form 1040SR, designed to be a simplified tax return for individuals who are over age 65.

Recharacterization of IRA contributions: The bill would repeal the rule that allows IRA contributions of one type (traditional or Roth) to be recharacterized as a contribution of the other type.


NOLs: The modified bill would limit businesses’ net operating loss deductions to 80% of taxable income, beginning after 2023.

Employer-provided meals: The bill would disallow an employer’s deduction for expenses associated with meals provided for the convenience of the employer on the employer’s business premises, or provided on or near the employer’s business premises through an employer-operated facility that meets certain requirements.

Credit for paid leave: The bill would create an employer credit for paid family and medical leave. The credit would equal 12.5% of wages paid to qualifying individuals on family or medical leave if the individual is receiving 50% of normal wages. The credit would increase (but not above 25%) for wages for which the rate of payment is over 50%.

—Alistair M. Nevius (Alistair.Nevius@aicpa-cima.com) is the JofA’s editor-in-chief, tax.