The full text of the bill as it stands
Pretty bare bones and obviously can and will change if it does get passed
. It says the limit is $50k of your income? Why are all the media outlets pushing this $150k number and where are they getting it from?
I assume if this passes it will just show up in our tax year 2020 refund when we get it early/mid next year. We're just excluding income during this period from your gross income which means it's an above the line deduction. I assume your employers would calculate this for you and adjust your W2 accordingly so I agree with the previous post that thought as such. They're not going to have you calculate your taxes during the period yourself, so on the W2 it likely will be.
My take: this
could reduce your 2020 taxes significantly. I'd be contributing to your 401k Roth and IRA Roth only right now even if we don't know this thing will pass. You should likely already know how much you should be contributing to your traditional vs Roth (the ratio). If you don't know, see a financial advisor
immediately or you will likely be paying
way more taxes in retirement. Regardless of the correct ratio for you, you can easily invest more this year in your Roth and then make up for it by putting more into your traditional in the future instead to still achieve the same balance. That way, you maximize your tax benefits this year if this thing passes (you pay a lower tax rate on those contributed funds) and deduct your traditional contributions in subsequent years when your tax rate is higher). If this thing doesn't pass though, you risk paying a slightly higher tax rate of your roth contributions this year since you wont have traditional contributions to reduce your income. You'll be able to contribute more to your traditional accounts in future years to make up for it, but you wouldn't be reducing your marginal rate as effectively. For example, if you have $120k in income, reducing your income by $20k will reduce your tax rate. If you reduce your income again by another $20k you won't reduce your tax rate as much as the original $20k. So concentrating all your traditional contributions in fewer years doesn't reduce your tax rate by as much. I think it's worth the risk though since the tax savings are much greater if this thing passes than the minor tax losses if this thing doesn't pass. If your income varies from year to year, that is something to take into consideration here since it affects your tax rate (and when you want to be contributing to a traditional vs Roth).
