Image Credits: Alex Wong / Getty Images

The Republicans rolled out their new tax plan on Nov 2nd. While this plan allows for some things in the current tax system will remain unchanged, should the bill be passed into law, the bill aims to implement a whole new system of taxation. Here’s what you need to know about the Republican tax plan.

The new bracket system

The bill would implement a new bracket system for taxation based on income. While we already have in place an income based bracket system, the new plan would implement a condensed version of the current bracket system. The Republican plan downsizes the current bracket system from seven income brackets to three.

Below the first bracket of the new tax plan, there is a level for low income earners. Those making an annual income of $24,000 or less annually, would pay no income tax at all.  Listed below are the tax rates and income caps for each bracket in the new system as it would apply to a married couple filing jointly. For individuals, or married couples filing separately, the income caps for each bracket would be set at half of these amounts respectively.

The first bracket

The first tier is taxes at a 12% rate. For married couples filing jointly, the first tier income would be capped at an income of $90,000 annually.

The second bracket

In the second tier, married couples who file jointly the income would be capped at $260,000 annually. It would be taxed at a rate of 25%.

The third bracket

In the final tier, the tax rate would be at 35% and be for the top income earners, making up to $1 million annually.

The new tax plan would essentially raise taxes on middle class families. The standard deduction for middle-class families would be approximately doubled. For married couples the standard deduction would be $24,000, up from $12,700. For individuals it would be set at $12,000, up from $6,530.

Other changes

The new tax plan would also tighten up the rules for claiming child tax credit, hitting hard mostly for “immigrant parents whose children were born in the United States,” reports the NYT.  However, it would expand the child tax credit from $1,000 to $1,600. The new tax plan would also include a $300 tax credit for each parent and non-child dependent such as a stay at home parent or an elderly family member. Furthermore, it would repeal the Alternative Minimum Tax (AMT).

What’s staying the same

One area of the current tax system which would remain untouched is retirement funds, pensions, Social Security and 401ks. It will also preserve the Earned Income Tax Credit (EITC) which is an important tax relief for low income earners. Furthermore state and local taxes up to $10,000 will continue to be able to be written off as well as charitable donations as stated by the talking points.

Katie Z
Contributor