A few months into his Presidency, President Joe Biden and his administration are moving forward to make significant changes in tax law. This article intends to outline key elements in President Biden’s plan and help clarify what changes have been enacted by Congress and which changes are still in the proposal stage.
To date, the Biden Administration has a three‐part program for tax policy changes. Of the three plans, one has been enacted (American Rescue Plan), and two have been introduced through proposals (The American Jobs Plan and The American Family Plan).
The American Rescue Plan was signed into law on March 11, 2021. This plan includes several tax law changes benefitting lower‐income individuals and families. The changes are designed to provide relief for problems worsened by the pandemic. Key changes to certain individual tax credits for 2021 are detailed below:
The child tax credit – For 2021, the credit is increased to $3,600 per child under age six and $3,000 per child ages six through 17.
The credit is now fully refundable. By making the Child Tax Credit fully refundable, low‐income households will be entitled to receive the full credit benefit, as significantly expanded and increased by the American Rescue Plan.
Credit amounts will be made through advance payments during 2021. Individuals eligible for a 2021 Child Tax Credit will receive advance payments of the individual’s credit, which the IRS and the Bureau of the Fiscal Service will make through periodic payments from July 1 to December 31, 2021. This change will allow struggling families to receive financial assistance now, rather than waiting until the 2022 tax filing season to receive the Child Tax Credit benefit.
Extension of the Employee Retention Credit for small businesses through December 2021.
Extension of Paid Leave Credit programs for small and midsize businesses through September 2021.
Additional Economic Impact Payments ‐ $1,400 for individuals and $2,800 for married couples, plus $1,400 for each dependent.
Waiving federal income taxes on the first $10,200 of unemployment benefits received by middle‐ and lower‐income taxpayers.
The American Jobs Plan (Proposed)
President Biden proposed The American Jobs Plan on March 31, 2021. Within the American Jobs Plan was the Made in America Tax Plan that contained the following proposed changes to the federal tax code:
Increasing the corporate tax rate from 21 percent to 28 percent.
Establishing a global minimum tax on U.S. multinational corporations.
Encouraging a global corporate minimum income tax through financial disincentives for countries who do not participate.
Requiring corporations located in America who have merged with a foreign company to pay federal income taxes.
Removing tax incentives for offshoring jobs and providing credits for onshoring.
Enacting a 15 percent minimum tax on profits from large corporations, likely defined as those with “book profits” of or more than $100 million.
Eliminating tax preferences for fossil fuels and reinstating the requirement that polluting industries make payments to the Superfund to cover remediation costs.
Increasing enforcement of the tax code and audits for corporations and high‐earning individuals.
The American Family Plan (Proposed)
The American Family Plan was proposed on April 28, 2021. Under this plan, President Biden and his Administration propose an increase of the tax on the wealthy. Some of the proposed plan’s highlights are:
Raising the top marginal income tax rate from 37 percent to 39.6 percent, which would apply to income over $452,700 for single and head of household filers and $509,300 for joint filers.
Subjecting Long‐Term Capital Gains and Qualified Dividends to Ordinary Income Tax Rates ‐ The rate applicable to long‐term capital gains and qualified dividends would be increased to 39.6 percent for households earning more than $1 million. A long‐term capital gain derives from assets held longer than a year. A “qualified dividend” is an ordinary dividend that meets specific criteria to be taxed at the current law lower capital gains rate rather than the higher individual ordinary income tax rate.
Tax unrealized gains at death for unrealized gains above $1 million ($2 million for joint filers, plus current law capital gains exclusion of $250,000/$500,000 for primary residences).
Apply the 3.8 percent Net investment income tax to active pass‐through business income above $400,000.
Limit 1031 Like‐Kind Exchanges above $500,000 in deferred capital gains.
The proposed changes can affect many taxpayers. To better understand how these changes may affect your particular situation – please contact our team of tax planning experts to help meet your personal and business goals.
Olsen Thielen & Co Ltd | Thomas E Pesch CPA, CMA | 952‐829‐3430