President Biden’s number one priority continues to be getting Covid-19 under control, but fixing the economy remains a close second. With a new administration in the White House and Democrats narrowly leading in both the House and Senate, we expect that there will be changes coming concerning taxes, retirement, the Affordable Care Act, fiscal spending and infrastructure, and global relations.
Biden’s Tax Plan
There is some concern over the forthcoming tax plan from the Biden administration. It is important to note that while Biden’s plan is progressive, it is not as progressive as those proposed by current senators. Rather, we are likely to see some reversion and expansion on Obama-era policies. Biden has said his tax plan aims to help lower- and middle-class taxpayers; higher taxes would be instituted on corporations and high-income earners.
Since there is only a slight Democratic majority in the House and Senate, modifications will likely have to be made in order to pass any tax reform.
Some of the changes being proposed:
- Raising the corporate tax rate from 21% to 28%. The Tax Cuts and Jobs Act cut the corporate tax rate from 35% to 21%.
- Restoring the top individual marginal tax rate from 37% to 39.6% (pre-TCJA rate).
- Capital gains may be taxed as income for households/individuals earning above $1 million.
- Possible elimination of step-up in basis for taxpayers who earn more than $400,000.
- Expanding the Child Tax Credit.
- Replacing deductions for retirement (such as 401k) with credits.
- Tax credit of up to $5,000 for caregivers.
Secure Act 2.0
The SECURE Act was passed late 2019 and was a major overhaul for retirement. This year, the Secure Act 2.0 is being considered, which includes:
- Automatic enrollment in a 401(k), with the ability to opt out.
- Changing the RMD age to 75 (currently 72).
- Increasing catch-up contributions in 401(k) to $10,000 for those aged 60+ (currently $6,500).
Building on the Affordable Care Act
The Biden administration is allowing an additional three-month enrollment period starting Feb. 15 for those who missed open enrollment on the Affordable Care Act late last year. A recent proposal by the Ways and Means Committee also included covering 85% of the cost of premiums for laid-off workers who are trying to keep their employer’s health insurance.
Changes during the Biden administration
The best way to handle changes through any new administration is to review your personal situation and plan for what’s to come, so that your financial decisions are proactive rather than reactive. If you have questions or concerns about how the Biden administration may affect your taxes, healthcare, properties, or other investments, we’re here to help.
The Team at Chatterton & Associates
Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither Royal Alliance Associates, Inc., nor its registered representatives, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.