Lawmakers in the U.S. House's Ways and Means Committee recently put forward some tax proposals designed to permanently codify some of the temporary changes enacted by 2017's Tax Cuts and Jobs Act (TCJA). Proponents of these changes claim that they'll boost wages for the middle class and add around one and a half million new jobs to the American economy.
While these proposals are likely to pass the House before the November 2018 midterm elections, it's not clear at this point whether they'll enjoy equal success in the equally-divided Senate.
Some of the changes included in the House proposal are:
- The creation of a "universal savings account" for families. This savings account would enjoy the same deferred tax status as a 401(k) but would have fewer restrictions on withdrawals and potential uses. Although 401(k)s can only be tapped (without penalty) before age 59.5 in a few limited circumstances, the universal savings account could enable workers to shield far more of their wages from federal and state taxation.
- The ability to use 529 college savings account funds for a wide range of college-related expenses, including homeschooling costs, student debt payments, and apprenticeship fees.
- Penalty-free 401(k) withdrawals for those who are dealing with childbirth or adoption expenses. Under current tax law, raiding one's 401(k) for childbirth expenses (or lost wages during maternity leave) can subject these funds to a 10 percent penalty on top of any taxes owed.
- The permanent reduction in the tax rate for pass-through business. Currently, this reduced rate (permitting a 20 percent deduction of the first $315,000 in earnings) is scheduled to expire in 2026.
- A permanent cap of $10,000 on state and local taxes (SALT) and the permanent elimination of the $4,050 personal exemption. Like the pass-through cut, the SALT caps and suspended personal exemption were also scheduled to expire in 2026.
- A proposal to permit start-up businesses to deduct more of their launching costs from their federal tax obligation.
If these proposals are enacted before December 31, they may prove a further challenge for tax professionals and software engineers who are already working on implementing the cuts and changes announced in December 2017. Staying on top of one's continuing education requirements can help tax professionals pay attention to smaller tax law tweaks that may change the advice given to clients.