How Joe Biden’s Tax Plan Could Affect You

Taxes are front and center for Americans every January when their W-2 and 1099 forms arrive in the mail for the next tax season. And now at Joe Biden’s door turning the 46^e President of the United States, it is reasonable to wonder what to expect from his administration when it comes to taxes. Will he work with a Democrat-controlled Congress to change parts of the 2017 tax cuts and jobs law? Will he expand tax credits for certain groups of Americans, such as seniors? And what will happen to the tax benefits with regard to retirement accounts?

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Biden’s tax policy is based on his belief that the 2017 tax law benefited wealthy taxpayers and businesses to the detriment of others, and he is expected to get to work immediately to change parts of the law signed by President Donald Trump.

With that in mind, here’s what to expect after his inauguration on January 20.

Repeal of parts of the Trump Tax Act

The Tax Cuts and Jobs Act of 2017 made several changes to the tax code that affected American families. This included expanding the standard deduction and child tax credit, doubling the inheritance tax exemption, and reforming the alternative minimum tax. He also cut taxes for top earners and businesses – the first areas Biden should target.

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What Biden will be able to accomplish early in his presidency remains to be seen, however, said George Birrell, a CPA and founder of TaxHub. “President-elect Joe Biden has said he plans to repeal Trump’s tax cuts, so I have no doubt he will at some point,” he said. “While he has pledged to repeal these cuts immediately, the process is more complicated than that and lingering pandemic issues may delay plans to increase taxes.

Higher taxes for higher incomes

Biden proposed to increase the marginal income tax rate from 37% to 39.6% for Americans who earn more than $ 400,000. Those who earn over $ 1 million annually would also pay 39.6% on long-term capital gains and investment income as part of his plan.

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“This will affect their bottom line but make economic equity more visible,” said Michael Hammelburger, CEO of The Bottom Line Group in Baltimore. “However, keep in mind that states and cities are strapped for cash due to the pandemic, so expect there to be more taxes in the coming months as we let’s move towards recovery with the prospect of vaccinating [the] majority of the population. “

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Increase incentives to save for retirement

Biden said he wants to change the way taxpayer contributions to a retirement plan – either through a 401 (k) plan or a traditional IRA – are incentivized to encourage low-income Americans and of the middle class to save for the future. Under current laws, contributions are treated as deductions from overall income at tax time instead of credits, but Biden wants to reverse that. Under his plan, low-income people would get larger tax breaks up front, while they cut for higher incomes.

“Under Biden’s proposal, every dollar you contribute will not be deductible, but instead, for every dollar you contribute, 26 cents will be deposited into your retirement account as a matching contribution,” lawyer James said. Maio, Director of Taxes at Slate Law Group. in San Diego. “Of course, as before, when you finally take that money out, it will be fully taxable. This would benefit those who invest in traditional or 401k IRAs, thus putting those investors on a par with those making Roth contributions since credits are always more valuable than deductions.

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Assistance to home buyers

Biden offered help to first-time buyers, which would give them a tax credit of $ 15,000. It would be paid immediately as a credit – essentially a down payment – rather than waiting for tax returns to be filed the following year. The government considers first-time home buyers to be those who have not owned a home in the past three years.

The wrong side? The COVID-19 pandemic has exacerbated an already insufficient stock of housing, with many people choosing to stay put. At the same time, other buyers have entered the market looking for homes to accommodate a new lifestyle of working at home and learning at home, increasing competition – and prices – for houses. A new group of buyers armed with a tax credit for a down payment could further increase selling prices, preventing potential buyers from entering.

Help for disabled people and seniors

People with disabilities and the elderly are two groups that could benefit from a Biden administration, Maio said.

“For Americans with disabilities, Biden’s tax plan aims to provide benefits through increased tax credits to both employers who hire people with disabilities and caregivers,” he said. “In addition, Biden’s plan aims to expand access to Achieving a Better Life Experience (ABLE) accounts, which provide tax-free savings accounts for people with disabilities to help pay for certain expenses.

“Additionally, Biden has proposed several tax changes to help seniors. First, his plan calls for increased tax benefits for older Americans who pay for long-term care insurance with their retirement savings. In addition, he wants to allow low-wage workers over 65 to claim the earned income tax credit. Currently, you cannot apply for the credit if you are over 65. “

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