The Tax Cuts and Jobs Act of 2017 (TCJA) is the unofficial name for the large set of changes to the Revenue Code of 1986, signed into law by President Trump in 2017. TCJA made many large changes across multiple areas of the tax code, including most infamously reducing the corporate tax rate, increasing the standard deduction, and increasing the applicable exclusion amounts for estate taxes. Only some of the TCJA changes were permanent, and over twenty provisions will expire by the end of 2025.
For individual tax deductions, the TCJA reduced some of the overall tax rates and changed many deductions. First, the TCJA reduced the seven brackets from 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% respectively to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Further, the income levels for the brackets were slightly increased, which generally reduced taxes for individuals. Secondly, the TCJA greatly increased the standard deduction from $6,500 to $12,000 for individuals and from $13,000 to $24,000 for those filing jointly. This increase in the standard deduction greatly reduced the number of individuals who benefit from itemizing deductions. Thirdly, the deduction for interest on home mortgages and equity was altered to reduce the mortgage limit to $750,000 and to limit eligible home equity. Fourthly, the state and local tax (SALT) deductions became capped at $10,000. Lastly, miscellaneous tax deductions for things like workplace expenses for employees were completely eliminated. All of these changes will revert back to their pre-TCJA provisions after 2025. The main individual change that will not end is the eliminated penalty for not having minimum medical insurance as enacted by the Affordable Care Act. These are just the most notable tax changes for individuals from the TCJA, but there are many others such as the increased child tax credits.
For businesses and investors, the TCJA greatly reduced the corporate tax rate, changed flow-through taxation, increased depreciations, and made fundamental changes to taxing international income. First, the corporate tax rate was permanently reduced to a 21% flat tax rate from 35%. Second, except for many types of service providers, individuals were given a deduction of 20% from pass-through income from business entities like partnerships and LLCs. Third, the TCJA enacted a 100% bonus deduction for business assets purchased through the end of 2022 and increased many expensing provisions that phase out after 2022. Lastly, the TCJA implemented major changes to how corporations were taxed for international income, including exempting foreign earned dividends from U.S. income tax for those owning over 10% of the foreign corporation and other provisions to tackle base erosion.
To see the text of the TCJA, click here.
[Last updated in May of 2022 by the Wex Definitions Team]