Brace yourself; tax reform 2.0 is coming.
Congress passed the Tax Cuts and Jobs Act in December 2017, making significant changes to the tax code. You even may have seen a change in the amount of taxes being withheld from your paycheck this year, since lowering tax rates was one of the major components of the measure.
But Congress isn’t done with tax reform just yet.
In a recent Washington Post interview, Republican Congressman Kevin Brady of Texas said the House Ways and Means Committee, which Brady chairs, could release an outline of additional tax reform measures as early as August.
What does this mean?
Prior to the Tax Cuts and Jobs Act, the last significant tax reform occurred in 1986. And while the 2017 tax reform bill made numerous changes in the tax code, many are set to expire at the end of 2025. For example, the lower tax rates only apply to tax years between Jan. 1, 2018, and Dec. 31, 2025.
Brady told the Post that there were a few driving factors for tax reform 2.0 in 2018. Those elements include making some tax cuts permanent, providing more tax cut benefits to families and creating a culture in Washington, D.C., that continuously improves the tax code.
The new plan would likely be multiple bills, Brady said.
“I think the Ways and Means Committee timetable will be to begin circulating a draft to House Republicans when we return after the Fourth of July break,” he told the Post. “We’ll spend the month listening to our colleagues in the House about what they want to see in 2.0 and incorporating those changes. I expect to see the legislative outline released in early August with votes in the fall, depending on when leadership wants to schedule them.”
Tax reform 2.0 might also aim to make it easier to save for retirement. A Ways and Means Committee spokesperson told global information services company Wolters Kluwer in May that the committee was considering proposals aimed at streamlining the process of saving for retirement.
Why should you care?
You might already be seeing some of tax reform’s early impact in your paycheck. Lower tax rates and higher standard deductions meant many people’s tax withholdings changed. As a result, your take-home pay might have increased.
When you file your 2018 federal income tax return (in 2019), you’ll likely experience more effects of the tax reform law.
For example, if you moved for work in 2018 and thought you could deduct moving expenses, the new law suspended that deduction. Or, if you had unreimbursed employee expenses related to your work, you won’t be able to deduct those either.
Additional changes to the tax code could further affect the amount of federal income tax you pay, the size of any refund you might be owed and even how you save for retirement or pay for healthcare.
What can you do?
While there may not be much you can do about tax reform 2.0 other than express your opinion to your representatives in Congress, you can take steps to help ensure that you’re in good shape to file your 2018 tax return next year.
- Understand how much you’re paying in taxes. If you haven’t already done so, plug your income and information into the IRS Withholding Calculator to understand how much you should have your employer withhold from your paycheck. This can help ensure you’re not underpaying your taxes throughout the year; underpayment could mean you owe come April 15, 2019.
- Consider adjusting your paycheck withholding accordingly. Whether you find you’re underpaying or may be paying more than you need to — and want to keep more money in your pocket throughout the year — consider filling out a new Form W-4 to change your paycheck withholding.