TAX IMPLICATIONS of the
AMERICAN JOBS PLAN
President Biden recently unveiled his new infrastructure plan which includes significant tax hikes for corporations and higher-net-worth families. While the plan has not been passed through congress, we thought we would share a quick overview of what is likely to come if there is a shift in tax policy.
The plan includes over $2 trillion in proposed infrastructure spending over the next 15 years. To offset this additional spending the plan imposes significant tax hikes on corporations and higher-net-worth families. The plan also includes a number of changes to corporate tax law while modifying the Tax Cuts and Jobs Act that was passed in 2017.
Increased Corporate income tax rate from 21% to 28%...
While the 7% corporate tax hike may translate into lower stock prices, reduced 401(k) matching, fewer bonuses, fewer raises and fewer stock grants for employees, another impact is likely to come from the income phaseouts on Roth and traditional IRAs. In addition to these proposed changes is a significant tax increase on those making over $400,000 a year.
Higher income, capital gains and estate taxes…
President Biden campaigned on taxing the wealthy and he’s now beginning to deliver on that promise. White House press secretary Jen Psaki said that the $400,000 threshold for higher taxes would be for families. That implies that individuals surpassing the $200,000 threshold are also likely to face higher taxes.
The changes that U.S. taxpayers are facing provide Monotelo with a significant opportunity to demonstrate our value. By getting creative and thinking outside the box, we can equip you to take proactive steps to reduce your short-term and lifetime tax burden.
If you would like to learn more about the specific changes that are being proposed, please see below. Warning! There is a fair amount of tax speak here!
The proposed tax plan includes the following changes:
Imposes a 12.4 percent Old-Age, Survivors, and Disability Insurance (Social Security) payroll tax on income earned above $400,000, evenly split between employers and employees. This would create a “donut hole” in the current Social Security payroll tax, where wages between $137,700, the current wage cap, and $400,000 are not taxed.
Reverts the top individual income tax rate for taxable incomes above $400,000 from 37 percent under current law to the pre-Tax Cuts and Jobs Act level of 39.6 percent.
Taxes long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6 percent on income above $1 million and eliminates step-up in basis for capital gains taxation.
Caps the tax benefit of itemized deductions to 28 percent of value for those earning more than $400,000, which means that taxpayers earning above that income threshold with tax rates higher than 28 percent would face limited itemized deductions.
Restores the Pease limitation on itemized deductions for taxable incomes above $400,000.
Phases out the qualified business income deduction (Section 199A) for filers with taxable income above $400,000.
Provides renewable-energy-related tax credits to individuals.
Expands the estate and gift tax by restoring the rate and exemption to 2009 levels.
Expands the Child and Dependent Care Tax Credit (CDCTC) from a maximum of $3,000 in qualified expenses to $8,000 ($16,000 for multiple dependents) and increases the maximum reimbursement rate from 35 percent to 50 percent.
For 2021 and as long as economic conditions require, increases the Child Tax Credit (CTC) from a maximum value of $2,000 to $3,000 for children 17 or younger, while providing a $600 bonus credit for children under 6.
Reestablishes the First-Time Homebuyers’ Tax Credit, which was originally created during the Great Recession to help the housing market. Biden’s homebuyers’ credit would provide up to $15,000 for first-time homebuyers.
If you would like to learn more about how these changes will directly impact you or how to proactively address these changes so your financial security is not put at risk, please reach out to us at firstname.lastname@example.org or 800-961-0298.
Failing to order your affairs to minimize your tax burden could cost you significant money - so don't wait to take action. If you have additional questions or need some planning help, please reach out to us.