Dec 07, 2020 - An Analysis of President-Elect Joe Biden’s Tax Plan
President-elect Joe Biden has proposed a series of sweeping changes to the tax code, including increasing taxes on households with more than $400,000 in income, as well as raising corporate and estate taxes.
Here’s a look at some of the major tax changes Biden has supported from an individual, corporate and estate perspective:
- Current tax rates range from 10% to 37%. Under Biden’s plan, the top tax rate would increase to 39.6% for those with income over $400,000.
- Eliminate the lower tax rate on qualified dividends and capital gains on those earning over $1,000,000 by taxing them at 39.6%.
- Keep the 3.8% net investment income tax intact.
- Impose a 12.4% social security tax for taxpayers earning over $400,000 with no increase in social security tax for wages between $137,500 and $400,000.
- Caps the tax benefit of itemized deductions to 28% for those earning more than $400,000.
- Eliminate or increase the state and local tax itemized deduction limitation of $10,000.
- Qualified Business Income (QBI) deduction – Phase out the deduction for those with income over $400,000 while relaxing the rules for real estate investors.
- Retirement Plans – Increased tax benefit for middle-income taxpayer contributions to 401(k) plans and individual retirement accounts (IRAs) by replacing the deduction for worker contributions to traditional IRAs and defined-contribution pensions with a refundable tax credit. Provide automatic enrollment in IRAs for workers who do not have a pension or 401(k)-type plan.
- Eliminate the beneficial treatment of carried interest by taxing it at ordinary tax rates (up from 20%).
- Increase the child tax credit, make it refundable and allow for advanced payment of the credit.
- Enact a refundable, advanceable tax credit of up to $15,000 for first-time homebuyers.
- Enact a renter’s tax credit, designed to reduce rent and utilities to 30% of income for low-income taxpayers.
- Potential cancellation of student loans after a 20-year period.
- Eliminate the stepped-up basis of appreciated property at death.
- Reduce the estate tax exemption to the 2009 amount of $3.5 million per person.
- Significantly reduce the annual gift tax exemption.
- Current 21% corporate tax rate would be increased to 28%, and corporations with book profits in excess of $1,000,000 would pay the greater of their regular corporate income tax or a 15% minimum tax on their book profit.
- 10% offshoring penalty surtax on the profits from any overseas productions by a U.S. company for sale in the U.S.
- Credit for companies creating jobs in America with a penalty for those who move their facilities overseas.
- Double the global intangible low-taxed income (GILTI) tax from 10.5% to 21%.
- Restoration and expansion of multiple environmentally friendly energy and solar credits.
- Eliminate the tax deferral on like-kind exchanges.
- Establish a workplace childcare facility tax credit of up to 50% of an employer’s first $1 million in costs for qualified on-site childcare.
The fate of President-elect Joe Biden’s tax plan will not be clear until after the Georgia runoff elections in January that will determine control of the Senate. Sax will continue to update you as further details are made available. For any questions or further information, feel free to reach out to Sax’s Tax Department at (973) 472-6250 or www.saxllp.com.