President Biden’s Tax Proposals: Change is Coming to US Taxation
By Howard Bakrins, Kutchins, Robbins & Diamond, Ltd.
On 28 April 2021, in an address to a Joint Session of Congress, United States President Biden introduced the “American Families Plan,” which is the President’s plan for spending and a series of tax changes to pay for it. The White House also published a fact sheet that provides details about the plan. This fact sheet is available at: whitehouse.gov.
President Biden’s address and the fact sheet provide the clearest idea of what we can expect to see in future tax legislation. Currently, these are simply proposals from the White House. Any actual legislation must originate in Congress. On many points, these proposals lack details, and it is these details that will determine what may become law and who will be impacted by the proposed changes.
The tax changes proposed by President Biden include tax cuts and extended credits for certain taxpayers. It also includes increased tax rates and Internal Revenue Service (IRS) enforcement for Americans earning over USD 400,000.
Highlighted below are some of the key tax changes in Biden’s Plan:
- Raise the top marginal income tax rate from 37% to 39.6%, which would apply to income over USD 452,700 for single and head of household filers and USD 509,300 for joint filers.
- Raise the tax rate on long-term capital gains and qualified dividends to ordinary income tax rates for taxpayers with taxable income above USD 1 million, resulting in a top marginal rate of 43.4% when including the new top marginal rate of 39.6% and the 3.8% Net Investment Income Tax (NIIT). In addition, the plan requires carried interests to be taxed as ordinary income.
- Limit the step-up of appreciated assets to USD 1 million (USD 2 million for joint filers) at death. Instead of eliminating the builtin gains, unrealized appreciation above USD 1 million (USD 2 million for joint filers, plus the current primary residence exclusion of USD 250,000 single/USD 500,000 joint) would be taxable at the decedent’s death. There are exceptions for assets donated to charities and for small businesses and farms passed down to heirs who continue to run the business.
- Apply the 3.8% Net Investment Income Tax to active passthrough business income above USD 400,000.
- Limit the 1031 Like-Kind Exchanges to a maximum of USD 500,000 in deferred gains. A gain higher than that amount would be taxed.
- Make permanent the 2017 tax law’s limitation on excess losses that applies to non-corporate income.
- Extend the enhanced Child Tax Credit (CTC) in the American Rescue Plan Act (ARPA) through 2025, which provides USD 3,600 for children under age 6 and USD 3,000 for children ages 6 to 17 subject to an income-based phase out.
- Make permanent the American Rescue Plan Act changes that made the CTC fully refundable and expanded the Earned Income Tax Credit (EITC) and Child and Dependent Care Tax Credit (CDCTC), and make permanent the expanded health insurance Premium Tax Credits provided in American Rescue Plan Act.
- The American Families Plan would also increase Internal Revenue Service (IRS) funding by USD 80 billion over a decade to increase tax collections and allow the IRS to regulate tax preparers.
While it was anticipated that Biden’s plan would eliminate the USD 10,000 SALT deduction cap, the plan does not address this, effectively leaving the cap in place.
Not included in the American Families Plan but previously discussed by the Biden Administration and its allies is an increase to the corporate tax rate from 21% to 28%, a corporate minimum tax of 15%, and a wealth tax on assets in excess of USD 50 million.
As mentioned earlier, these changes are only proposals and are in no way assured. It is likely to be several more months before any of these proposals advance through Congress and, if legislation is enacted, the final details may look much different than the ideas now being introduced.
Howard BakrinsGGI member firm
Kutchins, Robbins & Diamond, Ltd. (KRD)
Auditing & Accounting Tax, Advisory, Corporate Finance, Fiduciary & Estate Planning
Chicago (IL), USA
T: +1 847 240 1040
KRD Ltd. is CPA firm that offers a full range of client services: accounting and software consulting, audit and assurance, tax strategy and preparation, business valuations and financial planning advisory services. Their team of 80 members has been serving clients in Chicago and the surrounding areas for 30 years.
Howard Bakrins has over 18 years of accounting experience as a CPA. His expertise lies in middlemarket corporations and high-net-worth individuals, dealing with a large range of clients. Corporate executives and wealthy family groups value his experience with income tax planning, establishing charitable foundations, estate and gift tax planning, family limited partnerships, and transactional planning and analysis. Howard is also knowledgeable in the tax laws pertaining to hedge fund transactions. Howard earned his BS from University of Illinois and is a member of the AICPA and the Illinois CPA Society.
Published: International Taxation Newsletter, No. 15, Autumn 2021 l Photo: Thomas Barrat - stock.adobe.com