05/06/2021

A Look at the Biden Administration’s Far-reaching Tax Overhaul

Understanding what the changes would mean

Recently, President Joe Biden announced his $1.8 trillion American Families Plan (AFP), the third step in his Build Back Better policy initiative. The announcement followed the previous releases of the proposed $2.3 trillion American Jobs Plan and the Made in America Tax Plan. These plans propose major investments in various domestic initiatives, such as expanded tax credits for families, offset with tax increases on high-income individual taxpayers and corporations.

Proposed tax changes for the wealthy

The AFP would reverse many of the provisions in 2017's $1.9 trillion Tax Cuts and Jobs Act (TCJA) and other parts of the tax code that benefit higher-income taxpayers. These taxpayers could be hit by changes to the following:

• Individual tax rates. The plan proposes to return the tax rate for the top income bracket to Obama administration levels, going from the current 37 percent to 39.6 percent. It's unclear whether the income tax brackets will be adjusted. For 2021, the top tax rate begins at $523,601 for single taxpayers and $628,301 for married taxpayers filing jointly.
• Capital gains and qualified dividend income. For those with income of more than $1 million in a tax year, the AFP would tax long-term capital gains and qualified dividend income as ordinary income — in other words, at 39.6 percent. Long-term capital gains currently are taxed at a maximum rate of 20 percent (effectively 23.8 percent, when combined with the net investment income tax), depending on taxable income and filing status.

Please select this link to read the complete article from OSAE Strategic Partner Clark Schaefer Hackett (CSH).