The Tax Cuts and Jobs Act (PDF) passed by the Senate last week, as with the House bill of the same name, could create major changes in Americans’ lives that many are just beginning to fathom.

Congress still has to combine the bills into a single piece of legislation. But based on the bills’ similarities, it’s likely that the final resulting law will have huge implications for most Americans, from where they choose to live, to how they pay for their own or their children’s education, to how—or whether—they’ll get health insurance.

The main focus of both bills is a huge cut in corporate taxes, from the current top rate of 35 percent to a flat 20 percent. For individuals, the two pieces of legislation offer more modest and less permanent breaks. Both nearly double the standard deduction, change tax brackets, and add or increase some credits.

To help pay for those changes, both bills end most deductions for state and local taxes but allow property-tax deductions of up to $10,000. The bills also introduce a more stingy inflation factor used in many tax calculations.

The House bill cuts many deductions used by particular groups—teachers, college students, divorced people, and patients with high medical bills, for instance—and reduces how much mortgage interest taxpayers can deduct. The Senate bill preserves most breaks but gets rid of the Affordable Care Act’s penalty for being uninsured.

In the House bill, a new, $300-per-person, “family” tax credit disappears in 2023. The Senate bill sunsets almost all of its changes affecting individuals in 2026. By contrast, the corporate tax breaks are permanent. 

Researchers have looked at the potential impact. For instance, one study found that an estimated 13 million people could go without health insurance as a result and that countless others insured by state insurance marketplaces could see premiums rise further. 

Another study determined that middle-income families who currently take the standard deduction most likely would get a tax cut in 2018. Itemizers, on the other hand, stand a 50-50 chance of paying more. After a few years, though, individuals would gradually pay more.

Yet a third study has estimated that the Senate bill would save money for all groups of taxpayers in the first few years; after 2027, when most of its breaks sunset, only those in the top 1 percent of income would still see significant gains. The lowest 20 percent by income would actually owe more.

However, these studies focus on averages and aggregates, which obscures the reality that each family’s or individual’s tax situation is different. How would the varying tax brackets, the loss of specific breaks, and the gains from a higher standard deduction and child tax credits affect individual households? Under which bill would one family fare better?

To find out, we decided to look at the bills’ impact on several specific but representative households. We asked Phillip Schwindt, principal tax research analyst at Wolters Kluwer Tax and Accounting, a tax software and information company based in Riverwoods, Ill., to help us crunch the numbers for a few hypothetical families.

Maybe you’ll find a scenario here that resembles your own. That may help you get a better understanding of how you and your family could fare in the future under either plan.

Download this PDF to see details of how we arrived at our figures.

How the Tax Proposals Could Affect You

Whether this couple, with a wife in her second year of graduate school, wins or loses depends on which aspects of each bill survive. Gains and losses from the House plan would leave this couple with essentially the same tax they pay now. They could no longer deduct their dependent-care flexible-spending contribution, and the wife would lose her Lifetime Learning Credit. But they would pick up $1,000 more in a child-care credit, $600 more per child from an expanded child tax credit, and $600 ($300 per adult) from a new family credit.

The Senate bill preserves the deduction for the flex plan as well as the Lifetime Learning Credit. It provides a child tax credit $400 higher per child than the House bill but offers no new family credit. Those differences, combined with more generous tax brackets, would cut what this couple owed by more than half.

CURRENT TAX $4,037
HOUSE PLAN $4,072 ↑ $35 <+ 1%
SENATE PLAN $1,939 ↓ $2,098 - 52%

Assumptions: Homeowners, ages 42 and 43, with two school-aged kids. 401(k) contributions: $22,000. Dependent-care flexible spending account contribution: $5,000. Investment income: $400. Property taxes: $3,900. Charitable contributions: $2,900. Mortgage interest deduction: $6,000. Child-care expenses: $6,000. Annual tuition and fees: $10,500.


This head of household would get a refund under both bills, thanks in part to higher standard deductions, a big boost in the child tax credit, and the new family credit in the House bill. The Senate bill, which is somewhat more generous all around, would save her more.

CURRENT TAX $649
HOUSE PLAN -$200* ↓ $849 -131%
SENATE PLAN -$536* ↓ $1,185 -183%

Assumptions: Single parent, age 27, with one school-aged child, renting a home.

*Refund


Like this couple, nearly half of Americans—about 44 percent—pay no federal income tax now, according to the Tax Policy Center. Nothing would change for these retirees under either new tax plan.

CURRENT TAX $0
HOUSE PLAN $0
SENATE PLAN $0

Assumptions: Ages 72 and 74. Social Security income, $25,900. Pension income, $9,400. IRA income, $5,900.


This family, with lots of write-offs and personal exemptions, would fare better under the Senate bill, at least until its provisions expire. With both bills, they could deduct only $10,000 of their $22,000 property tax bill and none of their $9,700 state income taxes. In their favor, they'd no longer owe the Alternative Minimum Tax (the Senate raises income thresholds for that parallel taxation system; the House eliminates the AMT entirely). New family and child credits would make up for the loss of personal exemptions. But under the House bill these taxpayers could no longer subtract dependent-care flexible-spending contributions from pre-tax income.

If this family bought a bigger house with $27,000 in property taxes and a $630,000 mortgage, they could write off interest only on the first $500,000 of that debt under the House plan. That would increase their federal taxes by about $3,500, or 17.5 percent, over what they'd pay under current law. Under the Senate bill, which continues to allow homeowners to deduct interest on loans of up to $1 million, they'd pay about $700 more, a 3.4 percent increase.

CURRENT TAX $23,082
HOUSE PLAN $24,650 ↑ $1,568 + 6.7%
SENATE PLAN $23,011 ↓ $71 <- 1%

Assumptions: Married couple, ages 48 and 51, with two school-aged kids and two kids in college. Both spouses work. 401(k) contributions: $24,000. Dependent-care flexible-spending account contribution: $5,000. Healthcare flexible-spending account contribution: $2,500. Long-term capital gains: $10,000. Charitable contributions: $5,700. Child-care expenses: $6,000. Original home property taxes: $22,000; mortgage interest: $16,000. New home property taxes: $27,000; mortgage interest: $25,200.


This businessman would fare far worse under the House bill because it would no longer allow him to deduct his student-loan debt or alimony.

CURRENT TAX $10,260
HOUSE PLAN $12,468 ↑ $2,208 + 21.5%
SENATE PLAN $9,826 ↓ $434 - 4.2%

Assumptions: Divorced taxpayer with $59,000 in net self-employment income. Long-term capital gains: $600. Student-loan interest: $950. Property taxes: $800. Charitable contributions: $2,200. Mortgage interest: $6,228. Uses Roth IRA for retirement savings. Alimony/spousal support payments: $18,000.


This couple, who earn most of their income from investments in a small business partnership or "pass-through" entity, could save far more through the Senate bill. The House bill would tax a portion of that income at 25 percent, far less than the 39.6 percent top rate they'd be subject to under current law. The Senate bill would allow them to exclude 23 percent of their pass-through business income from taxation.

CURRENT TAX $753,507
HOUSE PLAN $674,898 ↓ $78,609 - 10.4%
SENATE PLAN $595,258 ↓ $158,249 - 21%

Assumptions: Married couple, ages 60 and 62, no dependent children. One works. Wages: $500,000; pass-through income: $1,600,000. (For this example, “reasonable compensation” was not considered in determining the income amount upon which the pass-through tax was determined.) 401(k) contribution: $24,000. Long-term capital gains: $25,000. Interest income: 28,000. Sales tax: $2,818. Property taxes: $30,000. Charitable contributions: $70,000. Mortgage interest: $35,000. Section 68 itemized deduction phase-out: $54,270. All of the business income is nonpassive. $480,000 of the business income qualifies for the 25% business tax rate. For the Senate version: business income deduction is $250,000, based on the assumption that the business paid $500,000 in qualified wages and the deduction was limited to 50% of the $500,000 in wages paid.


The House bill would eliminate the medical-expense deduction, creating a major tax bill for this widow in assisted living. The Senate bill has no such provision, but still raises her taxes by eliminating the personal exemption.

CURRENT TAX $679
HOUSE PLAN $7,900 ↑ $7,221 + 1,063%
SENATE PLAN $923 ↑ $244 + 36%

Assumptions: Widow, age 88. Long-term care expenses: $59,300. Health insurance and other medical expenses: $5,000. Social Security: $24,000. Pension and interest income: $48,000.


Sources: Phillip Schwindt, principal tax research analyst and Mark Luscombe, principal analyst, tax and accounting, at Wolters Kluwer Tax &Accounting; Steven Garcia, CPA; Michael Kresh, CFP; Robinson & Henry P.C.; Internal Revenue Service; United States Census Bureau; City-Data.com; Economic Policy Institute; Social Security Administration; Pension Rights Center; HSH.com; Zillow.com; Avalara.com; U.S. Government Accountability Office; Genworth.

ILLUSTRATIONS: CHRIS PHILPOT


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Whether this couple, with a wife in her second year of graduate school, wins or loses depends on which aspects of each bill survive. Gains and losses from the House plan would leave this couple with essentially the same tax as they pay now. They could no longer deduct their dependent-care flexible spending contribution; and the wife would lose her Lifetime Learning Credit. But they would pick up $1,000 more in a child-care credit, $600 more per child from an expanded child tax credit, and $600 ($300 per adult) from a new family credit.

The Senate bill preserves the deduction for the flex plan as well as the Lifetime Learning Credit. It provides a child tax credit $400 higher per child than the House bill, but offers no new family credit. Those differences, combined with more generous tax brackets, would cut what this couple owed by more than half.

CURRENT TAX $4,037
HOUSE PLAN $4,072 ↑ $35 <+ 1%
SENATE PLAN $1,939 ↓ $2,098 - 52%

Assumptions: Homeowners, ages 42 and 43, with two school-aged kids. 401(k) contributions: $22,000. Dependent-care flexible spending account contribution: $5,000. Investment income: $400. Property taxes: $3,900. Charitable contributions: $2,900. Mortgage interest deduction: $6,000. Child-care expenses: $6,000. Annual tuition and fees: $10,500.


This head of household would get a refund under both bills, thanks in part to higher standard deductions, a big boost in the child tax credit, and the new family credit in the House bill. The Senate bill, which is somewhat more generous all around, would save her more.

CURRENT TAX $649
HOUSE PLAN -$200* ↓ $849 - 131%
SENATE PLAN - $536* ↓ $1,185 - 183%

Assumptions: Single parent, age 27, with one school-aged child, renting a home.

*Refund


Like this couple, nearly half of Americans—about 44 percent—pay no federal income tax now, according to the Tax Policy Center. Nothing would change for these retirees under either new tax plan.

CURRENT TAX $0
HOUSE PLAN $0
SENATE PLAN $0

Assumptions: Ages 72 and 74. Social Security income $25,900. Pension income $9,400. IRA income $5,900.


This family, with lots of write-offs and personal exemptions, would fare better under the Senate bill, at least until its provisions expire. With both bills, they could deduct only $10,000 of their $22,000 property tax bill, and none of their $9,700 state income taxes. In their favor, they'd no longer owe the Alternative Minimum Tax (the Senate raises income thresholds for that parallel taxation system; the House eliminates the AMT entirely). New family and child credits would make up for the loss of personal exemptions. But under the House bill these taxpayers could no longer subtract dependent-care flexible spending contributions from pre-tax income.

If this family bought a bigger house with $27,000 in property taxes and a $630,000 mortgage, they could write off interest only on the first $500,000 of that debt under the House plan. That would increase their federal taxes by about $3,500, or 17.5 percent, over what they'd pay under current law. Under the Senate bill, which continues to allow homeowners to deduct interest on loans of up to $1 million, they'd pay about $700 more, a 3.4 percent increase.

CURRENT TAX $23,082
HOUSE PLAN $24,650 ↑ $1,568 + 6.7%
SENATE PLAN $23,011 ↓ $71 <- 1%

Assumptions: Married couple, ages 48 and 51, with two school-aged kids and two kids in college. Both spouses work. 401(k) contributions: $24,000. Dependent-care flexible spending account contribution: $5,000. Healthcare flexible spending account contribution: $2,500. Long-term capital gains: $10,000. Charitable contributions: $5,700. Child-care expenses: $6,000. Original home property taxes: $22,000; mortgage interest: $16,000. New home property taxes: $27,000; mortgage interest: $25,200.


This businessman would fare far worse under the House bill because it would no longer allow him to deduct his student loan debt or alimony.

CURRENT TAX $10,260
HOUSE PLAN $12,468 ↑ $2,208 + 21.5%
SENATE PLAN $9,826 ↓ $434 - 4.2%

Assumptions: Assumptions: Divorced taxpayer with $59,000 in net self-employment income. Long-term capital gains: $600. Student loan interest: $950. Property taxes: $800. Charitable contributions: $2,200. Mortgage interest: $6,228. Uses Roth IRA for retirement savings. Alimony/spousal support payments: $18,000/year.


This couple, who earn most of their income from investments in a small business partnership or "pass-through" entity, could save far more through the Senate bill. The House bill would tax a portion of that income at 25 percent, far less than the 39.6 percent top rate they'd be subject to under current law. The Senate bill would allow them to exclude 23 percent of their pass-through business income from taxation.

CURRENT TAX $753,507
HOUSE PLAN $674,898 ↓ $78,609 -10.4%
SENATE PLAN $595,258 ↓ $158,249 -21%

Assumptions: Married couple, ages 60 and 62, no dependent children. One works. Wages: $500,000; pass-through income: $1,600,000. (For this example, “reasonable compensation” was not considered in determining the income amount upon which the pass-through tax was determined.) 401(k) contribution: $24,000. Long-term capital gains: $25,000. Interest income: $28,000. Sales tax: $2,818. Property taxes: $30,000. Charitable contributions: $70,000. Mortgage interest: $35,000. Section 68 itemized deduction phase-out: $54,270. All of the business income is nonpassive. $480,000 of the business income qualifies for the 25 percent business tax rate. For the Senate version: Business income deduction is $250,000, based on the assumption that the business paid $500,000 in qualified wages and the deduction was limited to 50 percent of the $500,000 in wages paid.


The House bill would eliminate the medical-expense deduction, creating a major tax bill for this widow in assisted living. The Senate bill has no such provision but still raises her taxes by eliminating the personal exemption.

CURRENT TAX $679
HOUSE PLAN $7,900 ↑ $7,221 + 1,063%
SENATE PLAN $923 ↑ $244 + 36%

Assumptions: Widow, age 88. Long-term-care expenses: $59,300. Health insurance and other medical expenses: $5,000. Social Security: $24,000. Pension and interest income: $48,000.


Sources: Phillip Schwindt, principal tax research analyst, and Mark Luscombe, principal analyst, tax and accounting, at Wolters Kluwer Tax & Accounting; Steven Garcia, certified public accountant; Michael Kresh, certified financial planner; Robinson & Henry; Internal Revenue Service; U.S. Census Bureau; City-Data.com; Economic Policy Institute; Social Security Administration; Pension Rights Center; HSH.com; Zillow.com; Avalara.com; U.S. Government Accountability Office; Genworth.

ILLUSTRATIONS: CHRIS PHILPOT


Editor's Note

For those most part, these scenarios are based on average figures for income, home prices and other factors, provided by the Internal Revenue Service, the Bureau of Labor Statistics, and other sources. In these examples we assume that each household has private health insurance, except for the retired couple, which is insured by Medicare.