The Biden Administration Tax Plan Road Map seeks to roll back some of the laws under the Trump Administration while expanding or waiting on others. Here is a summary of key features in the plan impacting individual or corporate taxes.
U.S. Individual Taxes
Biden’s plan seeks to increase the top individual tax rate from 37% to 39.6% for taxpayers making more than $400,000. For this to work while keeping Biden’s campaign promise of no increased taxes for individual or joint filers making less than $400,000, income adjustments will be needed in the other six tax brackets.
For capital gains rates, Biden seeks to tax capital gain income at the top ordinary income rate of 39.6% for taxpayers with more than $1 million in income. He is also trying to reform the Opportunity Zone investment program by requiring a direct connection between real estate or business development and measurable improvements in areas such as housing affordability, job creation and positive economic impacts.
Looking at general tax credits and the continuing discussion around student loan repayment for individual taxpayers, Biden proposes the following changes to current tax law:
- Earned Income Tax Credit expanded to older workers (65+) as well as to younger workers, with the minimum credit raised to $1,500 and the income limit raised to $21,000
- For one year, raising the Child Tax Credit to $3,000 per child ages 6 to 17 and $3,600 for children under age 6
- A one-year expansion of the Child Care Tax Credit, to provide up to 50% credit on spending $8,000 on one child and $16,000 for two or more children under age 13
- A new, refundable, advanceable tax credit up to $15,000 to assist in first-time home buying, payable upon purchase
- Enactment of a new renter’s credit
- Reinstating tax credits for residential energy efficiency
- Reducing estate tax exemption amount to $3.5 million and increasing the top rate to 45%
- Student loans canceled, tax free, after students have been enrolled in an income-based repayment plan for 20 years
There is political pressure for Biden to eliminate $50,000 in federal student loans per student. As for state and local tax deductions, the itemized deduction for state and local taxes (SALT) is capped at $10,000, but Biden would cap itemized deductions at 28% of income and reinstate PEASE for incomes above $400,000.
Biden supports a $3,000 tax credit to family members for costs associated with caring for a loved one, and he wants to expand the Work Opportunity Credit to include military spouses.
There are other proposed changes to the treatment of employment and Social Security taxes as well as enhancements to retirement benefits contributions and withdrawals. Biden is also proposing a universal tax credit to people who purchase health insurance through an Exchange as well as an additional credit for use of informal health caregivers, including family members.
U.S. Corporate Taxes
One of the primary changes that Biden’s Administration proposes regarding the flat 21% corporate tax rate is to raise that rate to 28%, with a 15% minimum book tax on companies making more than $100 million in the U.S. that paid zero or negative federal income taxes. Credit for foreign tax paid and carryovers are allowed.
In addition, Biden is proposing a 10% offshoring penalty surtax on profits of any production by a U.S. company overseas for sales on American soil, making the overall tax rate on those profits 30.8%. There are other credits and penalties proposed that would incentivize keeping U.S. jobs and reshoring. This includes a 10% “Made in America” tax credit to companies that create jobs, raise wages above the pre-COVID baseline and revitalize or expand facilities.
A cap on the Qualified Business Income Deduction (QBID) is proposed to only go to taxpayers making $400,000 or less a year. Biden would eliminate QBID for real estate investors while also preventing investors from lowering their income tax bills with real estate losses through like-kind exchanges.
Other potentially significant corporate tax changes include:
- Raising the minimum GILTI rate to 21% and applying it to all income
- Ending incentives from the 2017 TCJA that allow multinationals to dramatically lower taxes on income earned overseas, including a “claw-back” provision on public investments and tax benefits when moving jobs overseas.
- Expanding tax credits for full-electric vehicles; expand deductions for energy retrofits, smart metering and emissions reductions, including carbon capture
For any questions on tax planning for 2021 and beyond for your individual or corporate taxes, Anglin is here to help.
For more tax insights, see our article on the Consolidated Appropriations Act, 2021.
Bureau of National Affairs; www.bna.com