- Herb Jackson USA Today Network
There's no shortage of Republican optimism and Democratic pessimism about what is going to happen if, as all signs indicate, Congress sends President Trump a sweeping tax bill this week and he signs it before heading to Florida for Christmas.
Trump's Council of Economic Advisers predicted the corporate tax changes alone would result in a $4,000 salary increase for the average worker. And the Republicans on the House and Senate committees that wrote the final bill say a family of four with the median family income of $73,000 will get a tax cut of $2,059, at least through the end of 2025.
But it's an understatement to say the public is skeptical.
A national poll by Monmouth University released Monday found 47 percent of Americans disapprove and 26 percent approve of the tax bills that passed each chamber in recent weeks. Some 50 percent said they expect their taxes to go up, while just 14 percent say they will go down.
If the bill is approved — the House is likely to vote on it Tuesday and the Senate on Wednesday — how soon will people feel the impact?
Like the tax code itself, the answer is complicated.
Nearly all of the tax changes take effect next year, which means the 2017 tax return most people will file in April — as well as January payments for those who pay taxes quarterly — will continue to follow the current tax code.
But people may not have to wait until April 2019 to get a break if they're due one.
Most employees have income taxes withheld from their paychecks, and payroll departments base the amount withheld from each check on Internal Revenue Service tables that take into account annual salary and factors such as the number of children. The IRS has said new tables could be available as early as February, meaning people could see their take-home pay increase before the winter ends.
"We’ve been doing things like this for years," said Pete Isberg, a vice president at ADP, which handles payroll for 1 of every 6 American workers. "It's pretty routine to have a major tax bill get signed into law in late December."
One potential glitch: The W-4 tax form every employee signs telling their employer whether they are married and how many children they have appears to be invalidated by the bill because it eliminates the exemptions taxpayers get for themselves, their spouses and their children.
"That implies employers need to collect new forms W-4 and get them signed, theoretically early in the year,” Isberg said. “With a workforce of 150 million to 160 million, that would be a workload for employers and employees to get them signed. We've been talking to the IRS about that already."
Another wrinkle to watch: Since the fiscal year began Oct. 1, Congress has funded the government with short-term spending bills, and needs to pass another one by Friday night to prevent a partial shutdown. The IRS may need a budget increase to deal with the crush of new rules to implement the tax bill, and it is not clear when Congress could make that happen.
The tax deduction for significant medical expenses was nearly eliminated, but then lawmakers made it more generous in the final bill, and the change was retroactive to the beginning of 2017. That means taxpayers who itemize will be able to deduct medical expenses incurred in 2017 that exceed 7.5 percent of their incomes, instead of the 10 percent threshold in the current law. The 7.5% threshold also applies 2018, but goes back up to 10 percent after that.
Benefits of the tax bill have already been flowing to shareholders via stock prices, as Wall Street anticipated the drop in the corporate tax rate from 35 percent to 21 percent by bidding up stock.
That benefits shareholders, including working people who own stocks through retirement funds. And business changes could lead to bigger dividends in the future as companies decide how to use savings from a lower corporate rate.
What about those new jobs?
A preliminary analysis of the final bill by the Tax Foundation, a think tank whose studies were quoted often by Republicans, indicates the final package may produce far fewer jobs than earlier drafts would have. The foundation now estimates 339,000 additional jobs being created over the next 10 years, down from an estimated 890,000 in the initial House bill and 925,000 in the initial Senate bill.
The change is largely because most of the individual tax cuts expire Dec. 31, 2025, which would theoretically slow any economic growth the cuts had generated, said Nicole Kaeding, a foundation economist.
"It's still a 10-year job figure, but it's generated almost completely by corporate income tax rate," Kaeding said. "When the corporate income tax rate is cut, firms increase investment, capital expenditures, and look to expand operations. To do that, they need to hire more employees."
Businesses whose owners pay their taxes on personal rather than corporate returns will get a new benefit under the bill — a 20 percent deduction of their business income before tax is calculated — which could also fuel job growth. But that tax break also expires in 2025, limiting its potential job impact.
Mary Schiavoni, founder of a Maine company that makes medical devices used by speech pathologists called Chewy Tubes, said the change would free up capital that would otherwise go to taxes.
“I would be interested in hiring more workers,” including a graphic designer, she said. She also would like to expand her packing room.
But Schiavoni was unsure when that would happen, saying she’d need to see how the law works before making the investment.
“I could see some of these things happening next year and the following year,” she said.
Things to consider before Jan. 1
With some deductions eliminated and others being cut back — most notably the deduction for state income and local property taxes — some taxpayers may face tax increases in 2018.
Paul Dougherty, an accountant with EisnerAmper in New Jersey, suggests two ways to cushion the blow.
First, if you can, pay property taxes this year that are due next year. This can be complicated if your taxes are paid from a mortgage escrow company, so talk with your bank too. Note: The bill does not allow you to prepay next year’s state income taxes to deduct them on this year’s return.
Dougherty also said that people who think they will take the standard deduction next year but still want a benefit for future charitable contributions could put money into what is known as a "donor advised fund," available through investment firms, and take the deduction on their 2017 return. Payments from the fund to designated charities could be made in future years.
Business owners who think they will fare better next year than this year can also see if there’s a way to defer income into the new year, Dougherty said.