What Biden’s Tax Plan Means for your Financial Plan? – by Syed Nishat

President Biden’s proposed Tax Plan and what it could mean to you by Syed Nishat, Partner at Wall Street Alliance Group

With the transition to a new administration in the White House, there are upcoming changes on many fronts. An analysis of the tax plan President Joe Biden released while campaigning gives an idea of what policies he may enact while in office and how they would affect different aspects of taxation. With the pass of 1.9 Trillion dollar stimulus bill, President Joe Biden released proposed policies he may enact while in office that may help lower the budget deficit. High earner may need to reposition themselves in an event the tax hike affects different aspects of taxation.

Plans for individual income tax, payroll tax, and estate/ gift taxes include:

• An additionally imposed Social Security payroll tax of 12.4% on income earned above $400,000, which will be split between employers and employees evenly. This would create a bracket of wages between $137,700 (the current wage cap) and $400,000 which are not taxed.
• Tax Rate: The top individual income tax rate for taxable income above $400,000 will revert back to 39.6% from the 37% it has been since the Tax Cuts and Jobs Act was enacted.
• Estate Planning: Step-ups in basis for capital gains taxation will be removed in trusts. The estate and gift tax will be restored to the rate and exemption levels that were in place in 2009.
• Long-term capital gains and qualified dividends will be taxed at the income tax rate of 39.6% in income over $1,000,000.
• With a cap of 28% of value on the tax benefit of itemized deductions for income over $400,000, taxpayers in brackets over 28% will have limits to their itemized deductions.
• QBI (Qualified Business Income deduction) Phase out: The plan will phase out qualified business income deductions for those will taxable income over $400,000.
• The Pease limitation, which placed limitations on itemized deductions for those filers with incomes over $400,000, will be restored.
• The First-Time Homebuyers’ Tax Credit, first created to help the housing market during the Great Recession, will make a return, providing up to $15,000 for first-time buyers.
• The Child Tax Credit (CTC) will be increased from a maximum of $2000 to $3000 for dependent children aged 17 and younger, with an additional $600 bonus credit for children under the age of 6. It will be fully refundable starting in 2021, a facet that will last as long as the economy requires, which will remove the $2500 reimbursement requirement and 15% phase-in rate.
• The Child and Dependent Care Tax Credit (CDCTC) will be increased from a $3000 maximum to $8000 ($16,000 in the case of more than one dependent) for qualified care expenses, and the maximum reimbursement rate will increase from 35% to 50%.
• The Earned Income Tax Credit (EITC), which provides renewable-energy-related tax credits for individual childless workers aged 65 or older will be expanded.

In terms of business taxes, the president’s proposed plan includes:

• The corporate income tax rate will increase from 21% to 28%.
• For corporations with profits of $100,000,000 or more, there will be a minimum tax required. This will be presented as an alternate minimum tax, as corporations will pay the greater of their regular income tax or the 15% minimum tax, which still allows for foreign tax credits and net operating loss.
• The New Markets Tax Credit will be made permanent and expanded further.
• Small businesses adopting retirement savings plans for employees will be offered tax credits. For retirement accounts, a refundable tax credit instead of the current deductibility could be introduced.
• To reduce the tax liability of businesses that have layoffs or hardships due to major government closure, there will be a new Manufacturing Communities Tax Credit.
• While ending tax subsidies for fossil fuels, the new plan will expand tax credits for several renewable energy sources. This will include tax credits for residential energy efficiency, restoration of the Electric Vehicle Tax Credit and the Energy Investment Tax Credit (ITC), and credits for carbon capture, use, and storage.
• Foreign subsidiaries of U.S. firms will have a doubled tax rate on Global Intangible Low Tax Income (GILTI), moving from 10.5% to 21%. This GILTI will be assessed on a country-by-country basis, and its exemption for expected returns of under 10% of qualified business asset investment (QBAI) will be removed.

This is just a sampling of some of the changes that may be implemented in the coming term, and they are varied and complex. To understand the impact of the proposed policies and how they may affect your own unique situation, it is very beneficial to meet with an experienced financial advisor who can monitor the tax situation and work to ensure you’re in the best position for any new changes.

Syed Nishat, BFA, is a partner at Wall Street Alliance Group. He holds a bachelor’s degree in business administration from University of Nevada Reno. Syed holds the FINRA Series 7, FINRA Series 63 and FINRA Series 66 licenses, along with licenses for life, disability and long-term care insurance. He also has been awarded the Behavioral Financial Advisor (BFA) designation.