Author: Adam O’Feeney, Tax Manager, CironeFriedberg, LLP
President Joe Biden has already announced the American Rescue Plan in early March 2021 followed by the American Jobs Plan (AJP) later that month. The third leg of Biden’s road to recovery is the American Families Plan (AFP), announced on April 28, 2021, at an estimated cost of $1.8 trillion.
Part of the Build Back Better initiative, the AFP aims to boost the U.S. economy by investing heavily in infrastructure, jobs, education, healthcare and other programs for millions of Americans and would be funded through a number of tax hikes including the elimination of long-standing tax breaks such as the carried interest preferential tax treatment.
The White House breaks down the $1.8 trillion AFP into three main parts:
- Add at least four years of free public education through quality universal pre-kindergarten and free community college; close equity gaps by training teachers and making college more affordable for low- and middle-income students.
- Provide direct support to children and low- and middle-income families by increasing access to quality child care; create a national paid family and medical leave program; and provide nutritional assistance and health programs aimed at reducing childhood hunger.
- Extend tax cuts for low- and middle-income families with children and American workers through the child tax credit, the earned income credit, and the child and dependent care tax credit.
President Biden describes his Build Back Better plans as “fiscally responsible”, because they rely on tax revenue to pay for spending programs and credits. While the AJP plans to be funded by corporate tax increases, the AFP will be paid for by higher individual taxes on the wealthy.
The White House breaks down the major individual tax impacts as follows:
- An increase to the top individual federal income tax bracket from 37% to 39.6% for income $509,300 (married joint) and $452,700 (single).
- To the extent their income exceeds $1 million, taxpayers would see their capital gains taxed at a rate of 39.6% (nearly double the current capital gains tax rate of 20%).
- Consistent application of the 3.8% Medicare tax on earnings over $400,000.
- An investment in IRS enforcement through increased funding for IRS audits. A White House representative estimates that the top 1% of individual taxpayers failed to report 20% of their income, resulting in $175 billion owed in taxes.
Under current law, private equity money managers and others can lower their tax bills by paying as low as 20% on carried interest profits. President Biden and his administration are pushing to eliminate this preferential treatment, and are proposing the income be subject to the same rates as their other income (up to 39.6% as outlined above).
Whatever your current family and/or financial situation may be, it is important to understand how these changes can impact you. With such a large amount of sweeping changes being proposed in a relatively short amount of time, it goes without saying that the money has to come from somewhere.
Adam O’Feeney, CPA, is a Tax Manager serving high-net-worth individuals and privately held family owned businesses in the manufacturing, distribution, hospitality, and construction/real estate industries. Contact Adam at firstname.lastname@example.org, and connect with him on LinkedIn.
If you need assistance or have any questions related to the American Families Plan, or any other potential tax law changes, please call your CironeFriedberg professional. You can reach us by phone at 203-798-2721 (Bethel), 203-366-5876 (Shelton), or 203-359-1100 (Stamford), or email us at email@example.com.