It is safe to say that the 2020 Presidential Election was on personality and relatively light on policy details. But with the January 20th inauguration approaching quickly, here is an overview of what we know about the tax plan that will likely come into play in the first few months of the Biden presidency:
- There is an expectation that Biden will enact several policies that will raise taxes on individuals with income above $400,000. This change is likely to include raising three primary taxes: individual income, capital gains, and payroll.
- Specifically, it is expected that a 12.4 percent Social Security payroll tax will come into place for wages about the $400,000 threshold, evenly split between employers and employees. According to many analysts, this would create what is known as a “donut hole” in the current Social Security payroll tax structure, with wages between $137,700 and $400,000 not being taxed.
- The adjustment would also involve the repeal of the 2017 Tax Cuts and Jobs Act (TCJA) components for high-income filers. This Act included several significant changes to individual income tax, including nearly doubling the standard deduction, adjusting limitations on itemized deductions, reducing income tax rates, and generally simplifying personal income tax by eliminating or loosening the requirement for a full itemization of deductions.
- Reverts the top individual income tax rates (above $400,000) from 37 to 39.6percent (the pre-TCJA rate).
- Taxes long-term capital gains and qualified dividends at 39.6percent on income above $1 million while eliminating step-up.
- There will likely be a temporary increase of the Child Tax Credit and Dependent Credit from a maximum of $3,000 in qualified expenses to $8,000 and $16,000 for multiple dependents. The maximum reimbursement rate will increase from 35 to 50 percent.
- A likely expansion of the Earned Income Tax Credit (EITC) for childless workers over 65.
- A likely provision of individual tax credits related to renewable energy.
- Re-establishing the First-Time Homebuyer’s Tax Credit, with analysts suggesting $15,000 as the most likely level.
- Expansion of the estate and gift tax by restoring both the rate and exemption to 2009 levels.
Watch this blog for a summary of the changes to corporate taxes that are likely to arrive with the Biden administration.