The November election is right around the corner and Joe Biden is looking increasingly more likely to win the election. Thus, it’s time to educate yourself on the Biden Tax Policy. If he were to win, you should expect some significant changes in the tax code which are aimed squarely at the wealthy. What exactly does he want to change?
- Social Security taxes would kick in for W-2 earnings above $400,000. This means an additional 6.2% owed by the employee AND an additional 6.2% owed by the employer for wages above $400K. Currently, Social Security taxes are only assessed on wages up to $137,700.
- The top income tax rate would increase to 39.6% from its current 37% rate.
- The Corporate tax rate would increase to 28% from its current 21% rate.
- The Biden Tax Policy would cap itemized deductions at 28% of Adjusted Gross Income (AGI)
- The Child Tax credit would increase from $2,000 to $4,000
- He would create a first-time homebuyer tax credit of up to $15,000, as well as a tax credit for renters.
- Long-Term capital gains would be taxed as ordinary income for those with taxable income of greater than $1 million. That would mean a tax rate of 39.6%, compared to the current combined rate of 23.8% for these taxpayers.
- A 26% refundable tax credit for contributions to qualified retirement accounts (IRA, 401(k), 403(b), etc.). The tax credit would come in the form of a matching contribution.
Under the Biden Tax Policy, if your AGI is below $400K, you will see an average decrease of 0.9% in after-tax income. If your AGI is above $400K, you will see a 17.7% drop in your after-tax income. These figures are averages for both populations per a budget model from the Penn Wharton School of Business.
With higher taxation comes an increased need for strategic tax planning. You shouldn’t wait until the tax code changes to start building a tax plan. There are many things you can do now, in expectation of higher tax rates, to achieve the most favorable tax treatment possible. Contact us now to build your own customized tax plan so that you’re not a victim of the Biden Tax Policy.
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