The WealthWatch: 2021 Biden Tax Plan and Federal Tax Proposals
The Biden administration is proposing about $4 trillion of new federal spending over 10 years as part of their new infrastructure legis-lation. To partially fund this new initiative, the new tax proposal includes higher taxes on individuals and corporations. These changes could potentially include higher individual and corporate tax rates, higher taxes on capital gains and new individual and corporate tax credits. Let’s take a look at some of these proposed changes:
• The current top individual tax rate is 37 percent. The Biden proposal will raise the top rate to 39.6 percent. This would apply to taxable income over $452,700 for individuals and $509,300 for heads of households and joint filers.
• Tax long-term capital gains and qualified dividends as ordinary income for taxpayers with taxable income above $1 million. That would result in a top marginal rate of 43.4 percent when including the top marginal rate of 39.6 percent and the 3.8 per-cent Net Investment Income Tax. Current law has long-term gains and qualified dividends taxed at 20 percent for those same individuals, plus the 3.8 percent Net Investment Income Tax.
• Tax unrealized gains at death for unrealized gains above $1 million ($2 million for joint filers, plus current law capitals exclu-sion of $250,000/$500,000 for primary residences).
• Apply the Net Investment Income Tax to active pass-through business income above $400,000. Currently, that income is not included in the Net Investment Income Tax calculation.
• Limit 1031 Like-Kind Exchanges above $500,000 in deferred capital gains.
• The proposed plan would extend to 2025 the enhanced Child Tax Credit providing $3,600 for children under age 6 and $3,000 for children ages 6 to 17. The proposal would also make permanent the changes that occurred last year that made the Child Tax Credit fully refundable and expanded the Earned Income Credit and the Child and Dependent Car Tax Credit.
• Raise the corporate tax rate from 21 percent under current law to 28 percent.
• There are also new initiatives to fund the IRS for more vigilant tax compliance for individual and corporate taxpayers, as well as new reporting requirements for financial institutions aimed at curtailing tax fraud.
These are just some of the highlights of the tax proposals being considered under the American Families Plan and the American Jobs Plan. We will continue to monitor these proposals and keep our clients and friends up to date on any new developments as they become more clear.
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