Here's what Trump's new tax plan means if you're the average person making 40,000 a yearGet the Full StoryAP Photo Alex Brandon
The INSIDER Summary:
President Trump unveiled a plan to overhaul the tax code.
A lot of details are yet to be determined.
For the average single young professional, the overall rate may be the same.
But the elimination of various deductions and credits could mean you'd pay more.
President Donald Trump has unveiled a framework for a new tax plan. If it passes into law, it'll be the most significant overhaul of the US tax code in generations.
But what does that mean for you? If you're the average single young professional, making around 40,000 per year, will you pay more in taxes? Or less?
The bottom line is: the details are too fuzzy to tell for sure just yet. But the proposed plan indicates that your overall tax rate will likely be roughly the same as it is now, while a number of eliminated deductions and credits could hit you harder.
The tax code isn't finished.
The first thing to understand is that the document is a framework and a lot of details still need to be determined before it can come to a vote.
The document we have now is nine pages long. It's a guideline agreed upon by the lead tax reform negotiators in the Republican party, representing Trump and both houses of Congress, all of which are controlled by the Republicans. The actual tax code is thousands of pages long. The details that fill those pages need to be agreed upon by enough people to pass the vote into law, which will likely require cooperation from Democrats.
AP Photo Pablo Martinez Monsivais
For individuals, the most important detail yet to be determined are the tax brackets.
Right now, we have seven brackets for different income levels, ranging from a 10 tax rate to a 39.6 tax rate.
The new tax plan would simplify that to three tax brackets with tax rates of 12 , 25 , and 35 . But it's not clear which level of income would qualify for each tax bracket.
The base rate might stay the same.
So, again, let's say you make 40,000 per year and you're single. Right now, those people get taxed at 25 per year, which is the rate for people who make 37,650 to 91,150.
So as far as the base rate goes, it's pretty likely that it would stay exactly the same.
You would have to pay more because you'd lose a lot of deductions.
But taxes aren't just about your total income. There are also all sorts of deductions and credits.
People pay different amounts for federal taxes depending on deductions because of student loans, credits for how many children they have, and so forth.
Trump's tax plan makes some huge changes for deductions. For young people, the most important may be dropping the deduction for state taxes.
Under the current tax plan, you can take deductions for the taxes you pay in state and local income taxes, real estate taxes, and personal property taxes. That means less of your income will be taxed by the federal government depending on how much you pay in taxes to state and local governments.
The Republican plan would eliminate that.
Chip Somodevilla Getty Images
So if you live in a state with a high tax rate — which also tend to be the states where a lot of young people live — you'll be hit a lot harder. The states with the highest tax rates are California, Oregon, Minnesota, Iowa, New Jersey, Vermont, New York, and Hawaii. Washington, DC also has a high rate.
The plan would eliminate all itemized deductions except for those on mortgage interest and charitable contributions. It would also abolish a 4,050 exemption for each of your dependent children without a specific replacement for child-care tax relief.
The bottom line: We still don't know everything.
For the American citizen making around 40,000 per year, the tax plan might not change much as it stands. Right now, it looks like you may have to pay a little more depending on where you live and what your life is like.
Individuals and families with somewhat higher incomes will likely have to pay more in taxes in the long run, as Josh Barro writes in Business Insider, but those who make substantially more will pay less.
"We can identify a group of taxpayers likely to face tax increases from this proposal: people with moderate to upper-moderate incomes who take itemized deductions, like those for mortgage interest and state and local taxes paid," Barro writes. "While these taxpayers would lose key tax benefits, rich taxpayers would come out ahead."
But there are many details that still need to be worked out, and there's no guarantee that any of this will pass into law.NOW WATCH: Traders are gearing up for Trump's tax cut plan