Sorting Through The Overhauled Tax Code

This week on the Call-In we wanted to know what questions you had about the tax cut President Trump signed into law on Friday. Now, we try to answer some of them.

LAUREN FRAYER, HOST:

It's time for The Call-In.

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FRAYER: This week we're talking about taxes. Republicans have pushed through their $1.5 trillion tax bill and President Trump signed it into law on Friday. It changes the corporate tax rate. It changes what deductions households can claim and much more. We asked you to call or write in with your questions. Now NPR's congressional reporter Kelsey Snell is here to answer them. She's read the bill. Hi, Kelsey.

KELSEY SNELL, BYLINE: Hi, there.

FRAYER: Five hundred pages. I imagine it took you a long time to wade through this. What are the biggest changes in this bill?

SNELL: Well, we've been hearing a lot about the corporate tax rate being cut from 35 percent to 21 percent. That's a big change. There are some big changes for individuals, too. So the standard deduction that most people take will be nearly doubled to $12,000 for individuals and $24,000 for married couples, and tax rates will be cut for most income brackets.

FRAYER: We got a lot of calls and emails from our listeners who are concerned about how this bill will affect them. Let's listen to one now. This question comes from Bob Engelken of St. Louis County, Mo.

BOB ENGELKEN: I was curious. I have a friend who, I do his taxes, and he pays alimony. I didn't know if alimony was still going to be eligible to be deducted from a person's income. And conversely, can his ex-wife claim it as income?

SNELL: So it depends on whether you are already divorced or if you're going to get divorced. If you're already divorced, the law doesn't change for you. But if you're somebody who gets divorced after December 31, 2018, there are new rules. So that means that if you are the person paying alimony, you don't get to deduct it. But if you're the person receiving alimony under the new bill, it would be not taxed. So it's a bit of a shift there.

FRAYER: We also got an email from Jennifer Meininger. She's a single parent from Gaithersburg, Md., and she wants to know if she'll still be able to file as head of household.

SNELL: Yeah. So the standard deduction for head of household - we talked a lot about the standard deduction for individuals and for married couples. But for the head of household it will also nearly double to $18,000. But, like everybody else, the personal exemption is being eliminated so that may change the way head-of-household taxes turn out. Another benefit there, though, is if you are single parent, you will have access to the child tax credit just like everybody else, and that is being doubled to $2,000. And the refundable portion - so the portion that could come back to you in the form of a check from the IRS, a refund check - is increasing to $1,400.

FRAYER: So it might make up the difference for Jennifer there.

SNELL: Right. It totally depends on each person's situation, but that might be a benefit.

FRAYER: A couple of listeners wrote in asking how this bill will affect Puerto Rico, especially after Hurricane Maria.

SNELL: Yeah. The overhaul would treat many businesses in Puerto Rico as foreign businesses. So it would apply a 12.5 percent tax on some business income, and some business leaders and politicians in Puerto Rico say the tax would be a setback for the country in a time when they're just trying to recover. Here's what Puerto Rico governor Ricardo Rossello told NPR's David Greene this week.

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RICARDO ROSSELLO: When you had a Congress going to Puerto Rico saying they wanted to help, the first opportunity they had to help, which was just by excluding Puerto Rico from this base erosion tax that's for foreign countries, they did not put that into the bill. So to me, it's unconscionable. Not only is Congress not leaving things as they are but they're actually making it worse for Puerto Rico on the economic front.

SNELL: Yeah. And lawmakers I talked to said that they are going to do other things to help Puerto Rico and that this is not the final say for those businesses. But it's very much been upsetting for people that are living in Puerto Rico and still trying to recover.

FRAYER: We also heard from a couple of small-business owners. This is Casey Burns of Kingston, Wash. Let's listen to his question.

CASEY BURNS: I am a self-employed flute maker. I make Irish flutes. We are wondering, the pass-through tax deduction, does that take place before or after this self-employment tax? So would it be deducted on the Schedule C? Also are there any other changes to expect on the Schedule C in terms of what we can deduct and not deduct for our businesses? Thank you.

FRAYER: Kelsey, help me out here. You've got to translate some of this. Pass-Through deduction, self-employment tax, Schedule C, schedule...

SNELL: Yeah.

FRAYER: Help me here.

SNELL: So a lot of what they're talking about here is the businesses known as pass-throughs. Those are people who are self-employed or own small businesses, where they take all of their income from that business and file it on their individual tax returns, and they saw a ton of changes under this bill. And this is probably a good time to say that when it comes to individual circumstances like this, it's probably best to assess, you know, whatever your own deductions are, your own situation with a professional. We are not in the best position to advise people on that. And for this particular one, some tax breaks in the bill, like state and local deductions, apply differently for the taxes that you've paid on business expenditures and on, you know, routine things you do as a business versus what you as a person do. So it's one of those situations where it's really important to keep very meticulous records of how you spend money and whether it's personal or business, and that will make a big difference going forward.

FRAYER: Keep your receipts.

SNELL: Absolutely.

FRAYER: Is there anything else that will be particularly important for small-business owners to know about this tax bill?

SNELL: So again, the section on small businesses is very complicated and very technical. They intended to make it so that there would be a top effective marginal tax rate of no more than 29.6 percent for small businesses. Part of how they do it is by offering a 20 percent tax deduction for the first $315,000 of joint business expenses. Again, very complicated and very specific to these small-business owners.

FRAYER: Our listeners are worried about how these tax changes will affect their paychecks. I mean, do you have any advice overall? Are there any resources out there to help people sift through this?

SNELL: So the two committees that worked on these bills have some really good policy explainers on their websites. So it's the Senate Finance Committee and the House Ways and Means Committee. And they are just two-sheet pages that kind of look through some of the policy highlights. That's a good place to start. Another option is, too, there's been a lot of really great coverage that our team at NPR has done so you can go to our website. We have a whole chart, and it's been visualized so you can take a look at some of the big changes that might affect you.

FRAYER: That's NPR congressional reporter Kelsey Snell. Kelsey, thanks so much, and merry Christmas.

SNELL: Thank you.

FRAYER: Next week on The Call-In, paying it forward. Has someone done something nice for you - bought you a cup of coffee, helped you dig your car out of a snow drift, perhaps, maybe even saved your life? Has someone's gift or good deed changed you for the better and now you're thinking of passing the good feelings along? Tell us about it and what you've done or are planning to do to pay it forward. Call 202-216-9217. Be sure to include your full name and your phone number, and we may use it on the air. That's 202-216-9217.

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