Update on Tax Reform December 2017 - Senate Bill Passes - Conference Committee Pending

Senate bill has passed & now must be reconciled with House bill

Since the US Senate passed its version of the Tax Cut and Jobs Act at just before 2 a.m. Eastern Time Services_Assurance.jpgon Saturday, December 2, 2017, the next step in the Tax Reform process is for the House and Senate conference committee to reconcile the differences between the two versions of the tax bill. The House passed its bill on Thursday November 16th.  Now the joint committee must produce a “conference report” that is satisfactory to the majority of conferees from each chamber. This conference committee effort may be challenging. Although there are some similarities in both bills there are also several significant differences. These differences include:

  • Differences in individual tax brackets – reduced to four brackets in the House bill and retaining seven in the Senate bill, and the top individual tax rate – 39.6% in the house bill and 38.5% in the Senate bill
  • Child and Family Tax Credits differ – House bill increase the child tax credit to $1,600 with a phase out for joint filers beginning at $230,000 and the Senate version increases the amount to $2,000 with phase outs beginning at $500,000 for joint filers. Mortgage interest deduction differences – House bill limits the deduction to the first $500,000 of debt principal and Senate bill keeps the deduction for acquisition debt but eliminates the deduction for home equity debt.
  • Taxation of pass through entities is very different – the House bill has special lower tax rates for pass through income while the Senate bill provides a 23% deduction for pass through income (limited to 50% of wages) for qualifying businesses
  • Corporate income tax rate reduction – House reduces the rate to 20% for 2018 and the Senate reduces the rate to 20% one year later in 2019
  • Alternative minimum tax – House bill repeals AMT for both corporations and individuals but the Senate bill retains AMT for both with higher exemption amounts for individuals. versions of the bill reduce the corporate tax rate from 35 percent to 20 percent, but the Senate bill calls for a one-year delay before the drop takes effect.

As you can see there are currently some significant differences between the two versions of the tax bill. Unless the House simply accedes to the language in the Senate bill since it was passed last, a conference committee must produce a report that addresses all these differences. The conference report must then be approved by both chambers. Conference reports when issued are generally non-negotiable and must be considered as is. These strict rules may prove to be very important considering that the Senate bill passed with a very narrow margin. Time will tell.

The team at Herbein will continue to update you as additional information becomes available.  In the meantime, if you have questions concerning your particular tax situation, contact your Herbein tax professional.