On November 7, 2020, many media outlets declared Democrat Joe Biden the 46th President of the United States. While the Democrats are projected to retain control of the House of Representatives, control of the Senate is still up in the air. At the time this article was written, it appears Georgia’s two senate seats will come down to a run-off election on January 5, 2021.
Democrats would need both seats to have an evenly split Senate, giving Vice President-elect Kamala Harris the tie-breaking vote. Joe Biden and his administration have plans to reverse many provisions of the 2017 Tax Cuts and Jobs Act (TCJA), the biggest tax reform our country has seen in decades.
Biden has proposed increasing the top individual tax rate back up to 39.6% from 37%. Currently the individual capital gains and qualified dividend rates are 0, 15 or 20%, depending on an individual’s taxable income for the year. Biden is proposing to increase the top tax rate of 20% (plus the 3.8% net investment income tax) for taxpayer’s with over $1 million of income from 23.8% to 43.4% -the top ordinary tax rate of 39.6% (plus the 3.8% net investment income tax).
Additional personal income tax proposals from Biden include expanding the earned income tax credit (EITC), dependent care credit, and a new $5,000 tax credit for caregivers of individuals with certain physical and cognitive needs.
Biden has also proposed a refundable $8,000 child care tax credit for a qualifying child, up to $16,000 for two or more children. Biden also plans to support a temporary expansion of the child tax credit for the duration of the pandemic crisis from $2,000 per child to $3,000 per child for children ages 6 to 17 and $3,600 for children under 6.
Biden has also proposed to restore the Pease limitation on itemized deductions for individuals with taxable income over $400,000, which existed before the TCJA eliminated the limitation. The current 12.4% FICA rate is split between the employer and employee. Biden has proposed that wages in excess of $400,000 be subject to a Social Security payroll tax of 12.4%.
Changes could be coming to business tax policy as well. Current Biden proposals include increasing the corporate tax rate to 28% from 21%. Additionally, Biden is proposing a 15% minimum tax or “book tax” on companies with reported income of $100 million or more.
For pass-through entities such as partnerships and S corporations, Biden is proposing to phase out the qualified business income deduction under Section 199A, that allows eligible taxpayers to deduct up to 20% of their qualified business income (QBI) for incomes above $400,000.
If you need assistance or have any questions related to the proposed Biden tax plan, 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.