As the Biden administration sets their agenda, many questions regarding changes to the tax laws remain unanswered. While President Biden’s proposed tax plan includes changes that may impact future tax rates and deductions, as well as potential new tax credits, to date, specific legislation has not been put forward. The following chart outlines some of the changes included in the Biden tax plan:
Income Tax Deduction
- Retains the current income tax rates of 10%, 12%, 22%, 24%, 32% and 35%.
- Increases the top income tax bracket from 37% to 39.6%.
- Lowers dollar thresholds, especially those in the upper tax brackets.
Long-Term Capital Gains
- Retains three capital gains tax brackets (0%, 15% and 20%).
- Increases the top capital gains tax rate to 39.6% for individuals with income above $1M
- Decreases the estate tax exemption to $3.5M per person or reinstates the $5M exemption in effect prior to enactment of the Tax Cuts and Jobs Act. (The current estate tax exemption is $11.7M per person.)
- Increases the gift and estate tax rate from 40% to 45%.
- Decrease the lifetime exemption amount to $1 million with a top tax rate of 45%
- Eliminates the step-up in tax basis for inherited property
- Caps itemized deductions to 28% of the amount of the deduction for those earning more than $400,000.
- Restores the Pease limitation and reduces the value of itemized deductions by 3% of the amount by which a taxpayer’s adjusted gross income exceeds $400,000.
Potential Tax Credits:
- Expanded child tax credit (CTC). Increase the CTC which currently tops out at $2,000 up to a maximum of $3,600 per child and make it fully refundable.
- Expanded child and dependent care credit would increasethe maximum credit to $8,000 (for one child and to $16,000 for two or more children) from the current maximum of $3,000. Fifty percent of the credit would be refundable.
- A new $5,000 credit for informal caregivers (family members or loved ones who do this work unpaid).
- A new credit of up to $15,000 for first-time homebuyers.
- An expansion of the existing premium tax credit that potentially makes state-sponsored health plans more affordable.
- Renter’s credit to reduce rent and utilities to 30% of income for low-income taxpayers.
- An expansion of the earned income credit to workers older than 65 who do not have a qualifying child
Visit plannedgiving.wustl.edu for updates on current tax legislation and news.
This information is not intended as legal or tax advice and is accurate as of the time of posting. For such advice, please consult an attorney or tax adviser. References to tax rates include federal taxes only and are subject to change. State law may further affect your individual results.
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