Tax Cuts And Jobs Act: Law Implementation Timeline

The Tax Cuts and Jobs Act (TCJA) was signed into law by President Donald Trump on December 22, 2017, and took effect on January 1, 2018. It was the largest tax code overhaul in three decades, making substantial changes to individual income taxes and the corporate tax rate. The act reduced tax rates for corporations and individuals, increased the standard deduction and family tax credits, and eliminated personal exemptions. Most of the changes introduced by the bill are set to expire in 2025.

The Act was signed into law by President Trump in 2018

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (TCJA) into law, marking the largest tax code overhaul in three decades. The Act brought about significant changes to individual income taxes and the estate tax, with most provisions set to expire after 2025.

The TCJA was a congressional revenue act that amended the Internal Revenue Code of 1986. It introduced sweeping tax reforms, including reductions in tax rates for corporations and individuals, increases in the standard deduction and family tax credits, and the elimination of personal exemptions. The Act also limited deductions for state and local income taxes, further restricted the mortgage interest deduction, and reduced the alternative minimum tax for individuals while eliminating it for corporations.

The TCJA had far-reaching implications for individuals and businesses. For individuals, it altered income tax rates, nearly doubled the standard deduction, and expanded the Child Tax Credit (CTC). It also introduced a new $500 tax credit for non-child dependents and raised the estate tax exemption. Additionally, the Act removed the mandate requiring individuals to purchase health insurance, a key component of the Affordable Care Act.

Businesses benefited from a single flat corporate tax rate of 21%, immediate expensing of short-lived capital investments, and a 20% deduction for pass-through income. The Act also introduced a territorial tax system, where only domestic earnings of corporations are taxed.

The TCJA was expected to stimulate economic growth in the short term, but its long-term impact on gross domestic product (GDP) was projected to be modest. It was also anticipated to increase federal debt and disproportionately benefit the most affluent, while potentially worsening America's fiscal trajectory if the tax cuts were extended.

It made significant changes to individual income taxes

The Tax Cuts and Jobs Act (TCJA) made significant changes to individual income taxes. The act reduced tax rates at almost all levels of taxable income and shifted the thresholds for several income tax brackets. The number of income tax brackets remained at seven, but the income ranges in several brackets were changed, and most brackets had lower rates. The top rate fell from 39.6% to 37%, the 33% bracket dropped to 32%, the 28% bracket to 24%, the 25% bracket to 22%, and the 15% bracket to 12%. The lowest bracket remained at 10%, and the 35% was unchanged.

The act also made changes to deductions and exemptions. It nearly doubled the standard deduction, from $12,700 to $24,000 for married couples, and from $6,350 to $12,000 for single filers. The personal exemption was eliminated—this was a deduction of $4,050 per taxpayer and dependent. The child tax credit (CTC) was doubled from $1,000 to $2,000, with $1,400 of this amount being refundable. A new $500 tax credit was also introduced for other dependents.

The act also made changes to itemized deductions. The deduction for state and local income tax, sales tax, and property taxes ("SALT deduction") was capped at $10,000. The mortgage interest deduction for newly purchased homes was lowered from total loan balances of $1 million to $750,000. Interest from home equity loans was no longer deductible, unless the money was used for home improvements.

The act also had an impact on healthcare. It eliminated the individual mandate of the Affordable Care Act, which required individuals to purchase health insurance or pay a penalty. This change was estimated to save the government over $300 billion, as fewer people would have insurance coverage.

Overall, the TCJA made significant changes to individual income taxes, with most of these provisions expiring after 2025.

It amended the Internal Revenue Code of 1986

The Tax Cuts and Jobs Act (TCJA) amended the Internal Revenue Code of 1986 by introducing a series of changes to deductions, depreciation, expensing, tax credits and other tax items that affect businesses.

One of the most notable changes was the introduction of a new deduction for qualified business income of pass-through entities, known as Section 199A. This provision allows owners of certain businesses to deduct up to 20% of their qualified business income, with limits based on income and type of business.

The TCJA also placed limits on the deduction for meals and entertainment expenses. While businesses could previously deduct up to 50% of entertainment expenses related to the active conduct of a trade or business, the TCJA eliminated this deduction for any expenses related to entertainment, amusement or recreation. However, taxpayers can still deduct 50% of the cost of business meals if they are present and the food and beverages are not considered lavish or extravagant.

Another significant change was the introduction of new limits on the deduction for business interest expenses. The TCJA limited the deduction for net interest to 50% of adjusted taxable income for firms with a debt-equity ratio above 1.5, with certain exceptions and special rules for partnerships.

The TCJA also made changes to the rules for like-kind exchanges, limiting them to certain exchanges of real property. Previously, like-kind exchange treatment applied to exchanges of real, personal or intangible property.

In addition, the TCJA introduced new provisions regarding payments made in sexual harassment or sexual abuse cases, disallowing deductions for certain payments related to such cases.

The TCJA also had an impact on businesses with employees, including changes to fringe benefits and the introduction of a new tax credit for employers that offer paid family and medical leave.

Furthermore, the TCJA made changes to the cash method of accounting, allowing small business taxpayers with average annual gross receipts of $25 million or less in the prior three-year period to use this method.

The TCJA also affected businesses or individuals that rehabilitate historical buildings, making changes to the rehabilitation tax credit.

Overall, the TCJA introduced a range of amendments to the Internal Revenue Code of 1986, with the aim of providing tax relief and simplifying the tax code for businesses.

It cut corporate tax rates

The Tax Cuts and Jobs Act (TCJA) was signed into law by President Donald Trump on December 22, 2017. The Act made significant changes to the tax code, including cutting corporate tax rates.

The corporate tax rate was changed from a tiered tax system ranging from 15% to 39% to a flat rate of 21%. This was a major reduction in corporate tax rates and was designed to reduce incentives for corporate inversions, where companies shift their tax base to low or no-tax jurisdictions. The Act also introduced a territorial tax system, meaning that only domestic earnings of corporations are taxed.

The Act also included a new deduction for qualified business income of pass-through entities, which allowed a deduction of up to 20% of qualified business income for owners of some businesses. Limits applied based on income and type of business.

The Act also introduced new limits on the deduction for business interest expenses. The deduction for net interest is limited to 50% of adjusted taxable income for firms with a debt-equity ratio above 1.5. Interest above this limit can be carried forward indefinitely.

The Act also made changes to depreciation and expensing of business assets. It introduced temporary 100% expensing for certain business assets, such as equipment and buildings, acquired and placed in service after September 27, 2017, and before January 1, 2023. It also increased the maximum deduction for equipment and certain improvements to non-residential real property to $1 million, with a phase-out threshold of $2.5 million.

The Act also included changes to the treatment of foreign earnings. It introduced a base erosion anti-abuse tax, designed to counteract tax planning strategies that involve moving taxable profits from one country to another with low or no taxes. It also altered the treatment of intangible property held abroad, such as patents and trademarks.

Overall, the corporate tax cuts were expected to benefit shareholders, who tend to be higher earners. A study by the Federal Reserve Bank found that corporations used the tax cuts to buy back stock and pay down debt, rather than increase capital expenditures or investment in research and development.

It reduced tax rates for individuals

The Tax Cuts and Jobs Act (TCJA) was signed into law by President Trump on December 22, 2017, and took effect on January 1, 2018. The Act made significant changes to individual income taxes, reducing tax rates for individuals at almost all levels of taxable income.

The TCJA reduced the top rate of income tax from 39.6% to 37%, the 33% bracket to 32%, the 28% bracket to 24%, the 25% bracket to 22%, and the 15% bracket to 12%. The lowest bracket remained at 10%, and the 35% rate was unchanged. These changes were designed to benefit individuals based on their income level, filing status, and deductions.

The Act also nearly doubled the standard deduction. For the 2024 tax year, the standard deduction for single filers is $14,600, increasing to $15,000 in 2025. For married couples filing jointly, it is $29,200 in 2024 and will be $30,000 in 2025. The personal exemption, which was $4,150, was suspended through 2025.

The TCJA also expanded the Child Tax Credit (CTC), doubling the maximum per-child credit amount from $1,000 to $2,000. The refundable portion of the credit was increased, but the maximum refundable credit was limited to $1,400 per child in 2024 and 2025. The CTC was also made available to higher-income families by substantially increasing the income thresholds at which the credit phases out.

In addition to reducing tax rates, the TCJA also created a new $500 tax credit for dependents who are not eligible for the CTC. This includes children who are too old, full-time college students, and other adult members of the household who the taxpayer provides significant financial support for.

The majority of the individual tax provisions in the TCJA are set to expire after 2025.

Frequently asked questions