Americans are heading into 2021 with more uncertainty about the pandemic, the state of the economy, and how a Biden presidency might affect their taxes. President-elect Joe Biden’s tax plan isn’t set in stone just yet - he’d have to have the full support of Congress to enact all of the proposed changes. But just in case you have questions about the proposed tax plan, we’re providing an overview of what Biden’s tax plan is and how it may affect your taxes in 2021 and beyond.
Joe Biden’s Tax Plan
Biden’s tax plan aims to help lower- and middle-class taxpayers while instituting higher taxes on corporations and high-income earners (those who earn above $400,000 annually). Current estimates say that this tax plan would raise between $2 – $3 trillion over the next decade. While his plan is progressive, it is not the most progressive in the history of the U.S.
Key portions of Biden’s tax plan include:
- Raising the corporate tax rate from 21% to 28%.
- Restoring the top individual marginal tax rate from 37% to 39.6% (pre-TCJA rate).
- Instituting a 12.4% Social Security payroll tax on annual wages over $400,000.
- Phasing out the 20% qualified business income (QBI) deduction for high-income earners.
- Reducing estate tax exemptions back to 2009 levels (adjusted for inflation) - $5 million, compared to the current $11.58 million, for individuals.
- Having those whose incomes exceed $1 million annually pay the same tax rate on investment income as they would wages.
- Expanding the Child Tax Credit: Households would receive $3,000 per child for children ages 6 to 17 and $3,600 for children under 6. Biden is also proposing tax credits for first-time homebuyers and caregivers.
For a deeper look into Biden’s proposed tax changes, check out the Committee for a Responsible Federal Budget’s overview.
Which policy measures have a chance of getting passed?
Many of Biden’s sweeping reform measures require the full support of Congress. If Republicans retain control of the Senate, it’s unlikely that much will happen within the first two years of his term. However, some of what he is proposing would occur after 2025, regardless of new legislation (for example, the Tax Cuts and Jobs Act of 2017 made most of the corporate tax provisions permanent, while all of the individual tax provisions would revert back to what they were in 2017).
That said, his tax credit proposals (such as the expansion of the CTC) would likely have some bipartisan support. Additionally, it is likely that Biden’s primary focus will be getting the coronavirus under control before attempting any tax reform. Even if Biden’s changes are passed, they are unlikely to be enacted until 2022 at the earliest.
Have questions about the possible effect on your taxes?
If you have questions or concerns about how the Biden presidency may affect your taxes, we’re here to help. Our financial professionals equip you with strategies not only to save money in the short term, but to preserve your wealth for generations to come. Contact us today to discuss.
The Team at Chatterton & Associates
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.