While the U.S. election cycle makes its way through the court challenges of President Trump our newly elected presumptive president is ready to go to work on implementing his tax plan. Here are some key highlights:
President-elect Joe Biden would repeal many of the Tax Cuts and Jobs Act (TCJA) components for high-income filers. This would enact several policies that would raise taxes on individuals with income above $400,000, including raising individual income, capital gains, and payroll taxes.
- Biden has proposed restoring the top current individual tax rate to its pre-TCJA rate of 39.6% up from 37% for single taxpayers with income of excess of $520,000 and married taxpayers with income over $620,000.
- The current 20% deduction under Section 199A for passthrough entities would be phased out for taxpayers with income of more than $400,000
- Biden would have the social security payroll taxes, that currently phase out at $137,700, apply to wages over $400,000. Leaving a ‘donut hole’ where wages above the current threshold and less than $400,000 would not be subject to the 12.4% payroll taxes.
- Biden would also raise taxes on corporations by raising the corporate income tax rate from 21% to 28% and establish a corporate minimum tax on book income (profits of $100 million or higher).
- Capital gains taxes would increase to as high as 39.9% for those earning more than $1 million a year. (The current rate is 20% on assets sold after being held for more than one year).
- Estate Taxes-Biden proposes returning to the 2009 levels increasing from the current 40% tax rate (on estates valued over $11.58 million) to 45% and would also lower the estate tax exemption for estates valued up to $3.5 million.
- Eliminate stepping up the basis of inherited property to fair market value.
- Itemized deductions-Under the Trump administration the law allowed taxpayers to deduct the greater of 1.) the standard deduction or 2.) the sum of the itemized deductions. The standard deduction was nearly doubled from prior years. For those taxpayers who itemize, Biden’s plan would reduce a taxpayer’s total itemized deductions by 3% for every dollar of income exceeding $400,000. His plan would also cap the benefit of itemized deductions at a 28% rate (not kicking in until income exceeds $400,000).
- Increase the dependent childcare credit to $8,000 for one child and $16,000 for two or more children.
- Create a refundable “First Down Payment” tax credit of up to $15,000 for first-time home buyers.
All eyes are now on Georgia
The major roadblock for President-elect Biden’s proposed plans, outlined above, is the Senate race results in Georgia. The Democrats held the majority in the House of Representatives during our recent election. However, the Senate remains unresolved. Of the 100 seats in the Senate, 50 are Republicans and 46 Democrats. There are two independent senators, who caucus with Democrats. That leaves the two open remaining seats, in Georgia, that will be decided in January runoffs. The Democrats would need a majority in the Senate to help pass President-elect Biden’s Tax Plan. Stay tuned for more news following the January Senate results in Georgia.
Source: Tony Nitti, Senior Contributor, Forbes; Terry Savage, The Savage Truth
