Trump Proposes 3 Individual Federal Income Tax Brackets

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By Michael Trimarchi

A tax plan that would reduce individual federal income tax brackets to three from seven was proposed April 26 by the Trump administration.

The proposal, which was similar to what President Donald Trump promoted during the 2016 election campaign, called for individual tax brackets of 10, 25 and 35 percent, Gary Cohn, the national economic director, said during a White House briefing on the proposal.

During the campaign, Trump proposed individual federal income tax brackets of 12, 25 and 33 percent. The seven brackets now in place are 10, 15, 25, 28, 33, 35 and 39.6 percent.

The proposal also calls for doubling the standard deduction, so a married couple would not pay taxes on the first $24,000 in earned income, Cohn said.

The 2017 standard deduction for heads of household is $9,350. The other deduction amounts for 2017 are $6,350 for singles and married couples filing separate returns and $12,700 for married couples filing jointly, up from $12,600.

“So, in essence, we are creating a zero tax rate” on the first $24,000 amount earned by a couple,” Cohn said.

Families with child-are and dependent-care expenses would receive tax credits under the proposed plan.

More details on the tax proposal are expected by June, said Mick Mulvaney, the White House budget director.

Because a larger standard deduction would lead to fewer allowable deductions, the need to itemize would be reduced, Cohn said. That means the tax form would revert to one page, he said, noting that the 1935 individual tax form was one page with 34 lines.

Today, the basic Form 1040, U.S. Individual Tax Return, has 79 lines, Cohn said. Additionally, the Internal Revenue Service has 190 forms to accommodate the individual side of the federal tax code, he said.

The Trump administration plans to work with the House and Senate “to develop the details of a plan that provides massive tax relief, creates jobs, and makes America more competitive—and can pass both chambers,” said a one-page fact sheet distributed at the briefing.

The administration plans to hold discussions in May to receive input on the proposal from business leaders in sectors such as retail, manufacturing, banking and transportation, said Treasury Secretary Steven Mnuchin, who also attended the White House briefing April 26.

The administration is determined to act quickly on the proposal so it may be approved in 2017, Mnuchin said. “We are determined to move this as fast as we can and get this done this year,” he said.

Here is an update on other tax-related legislation:

Mobile Workforce State Income Tax Simplification Act of 2017. Congress continues to ponder the bill (H.R. 1393, S. 540) to bar state taxation of the income of out-of-state workers who visit a location for fewer than 30 days a year.

The House bill was approved in March by the Judiciary Committee; a floor vote has not been scheduled. In the Senate, a companion bill was introduced in March and referred to the Finance Committee, which has not said it would consider the measure. Regarding either bill, the White House has not indicated a position.

American Health Care Act. The House bill (H.R. 1628) is the Republican plan to repeal and replace the Affordable Care Act, which was enacted by the Obama administration. The bill was introduced March 20 and pulled from the House floor before a scheduled March 24 vote. Whether the bill comes up for a vote is unclear because legislators continue to debate the benefits that should require coverage under health plans.

The ACA encompasses a number of payroll-related requirements for employers, especially in determining if companies are applicable large employers. The designation, based on total hours worked by full-time employees and full-time equivalent employees, is used for reporting whether minimum essential health coverage was offered to full-time employees and dependents.

Employers also must provide reports to the IRS and employees on verifying health-insurance offers and substantiating the value of essential minimum coverage.

If the House bill reaches the Senate, it likely would face substantial changes requiring a conference committee to resolve differences. The White House supports the bill and has pushed for a vote.

Identity Theft and Tax Fraud Prevention Act. The Senate bill (S. 606), which was referred to the Finance Committee, would require the Treasury Department and the office of the National Taxpayer Advocate to develop guidelines for how the IRS identifies and manages identity-theft cases.

To contact the reporter on this story: Michael Trimarchi in Washington at mtrimarchi@bna.com. To contact the editor responsible for this story: Michael Trimarchi at mtrimarchi@bna.com.

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