President Biden unveiled his American Families Tax Plan on April 28, 2021. The tax plan is a $1.5 trillion, ten-year program to increase funding for federal government support in education, childcare, paid leave, nutrition, and families. Proposed tax increases would have a significant impact on the high-net-worth individuals and high-income earners.
While the details are still not available, here is a brief summary of the plan’s provisions:
- The top income tax rate for individuals would be increased to 39.6% from 37%.
- The capital gain tax rate would be increased to 39.6% for households making over $1 million.
- The “Step-up in basis” on transfers of assets from a decedent’s estate to its heirs would be eliminated for gains in excess of $1 million for a single filer. It is not clear how this threshold would operate.
- “Carried interests” would be taxed as ordinary income tax rates.
- Tax deferrals on “like-kind” exchanges of real property would be eliminated when gains are greater than $500,000.
- “Excess business losses” deduction limitations under Internal Revenue Code Section 461 would be made permanent.
- The 3.8% net investment income (Medicare) tax would be expanded.
- Funding to the IRS would be increased by $80 billion to improve compliance, information reporting, overhaul technological infrastructure, and regulate tax preparers.
- The increase in Child Tax Credit under the American Rescue Plan Act would be extended through 2025 and will be fully refundable. The temporary expansion of the Child and Dependent Care Tax Credit would be made permanent.
- The expansion of Earned Income Tax Credit for childless workers would be made permanent.
This Biden Tax Plan will be the topic of much debate in the coming months, and we anticipate more changes to be made to the plan as the negotiations progress. There are currently no effective dates for any of these proposed changes.
The current plan does not include any changes to the $10,000 limitation on state and local tax deductions. It also does not change the top bracket for the estate tax rate currently set at 40%.
For questions or more information about this article, please contact our tax professionals at taxalerts@windes.com or call toll-free at 844.4WINDES (844.494.6337).