By Royasha Paudel
With the new presidency beginning on January 20th, 2021, it is vital to know what this means, financially, for all tax-paying Americans. Joseph R. Biden is set to be the 46th president of the United States and with that, he brings new policies. All of Biden’s policies are not official since they must pass other branches of government including a rather equally divided Senate between Democrats and Republicans.
One of the most talked-about policies this election was income taxes. Biden’s plan is an increase in the top marginal tax bracket for an income over $400,000. This increase would be from 37% to 39.6%, meaning that whatever amount of money made exceeds $400k, there is a 2.6% tax increase in that tax bracket (not a flat tax rate). It is important to note that this is nothing new because before President Donald Trump lowered taxes for the wealthiest 1%, the tax rate was already 39.6%. Joe Biden wants to restore that incentive and will not raise taxes on over 99% of Americans who make under $400k.
Joe Biden wants to eliminate the step-up in basis. A step-up in basis is a huge tax advantage for those who inherit anything with capital gains. Capital gains can include real estate, stocks, business, and more. The capital gains are cleared since the cost basis gets re-evaluated at its current price. It reduces or eliminates the tax on an inherited asset the heir to that asset would have to pay.
A tax credit reduces the income tax that you owe by dollar-for-dollar. For instance, if you owe $3,000 in taxes, and you have that same amount in tax credits, you don’t have to pay any money back. Biden wants to re-instate the first-time homebuyer tax credit. This tax credit was initially made in 2008 after the recession to encourage people to buy homes. This refundable tax credit would be worth $15,000. Anyone buying their first home might be eligible to receive $15k in tax credits. Since this is a refundable tax credit, it means even if you do not owe money, the government would pay you whatever that credit was worth.
Biden hopes to increase the child tax credit from $2000 to $3000 per qualifying child. This has a cap of $16,000. Families will receive an additional $1,000 if they are eligible. The IRS website provides requirements for compensation.
Joe Biden proposes an increase in corporate tax. His tax policy demonstrates a raise in taxes from 21% to 28%. This applies to large corporations, not small businesses. It is difficult to determine but economists are debating how this will affect regular wage earners. The conservative-leaning argument is that increased taxes will cause a slight decrease in the wages of people who work for those corporations. But again, this is not a dramatic new increase; prior to Trump’s presidency, the corporate tax rate was 35% which he proceeded to decrease by 14% to its current of 21%.
Currently, there is a 12.4% social security tax up to $137,700. But if you have an employer, they pay for half and you pay the other 6.2%. For example, today, people making $137.7k and $7 million pay the same in social security tax. Biden proposes a social security ‘donut hole’ payroll tax to make it so that people get taxed social security with incomes above $400,000. The reason why this payroll tax increase is called a donut hole is that, from $137,700 to $400,000, nothing changes.
As of right now, if a person gets their debt forgiven, they have to add that debt amount to their taxable income. Biden wants to eliminate adding forgiven debt to the taxable income. So if a person eliminates their taxable income, there is nothing else that needs to be done.
Biden wants to implement a Rentals Tax Credit for qualifying Americans. Tax credits will be given to those who are eligible and pay more than 30% of their income on rent and utilities. Biden believes people should have money left over to be able to provide other basic needs.
Another one of Biden’s tax policies is health insurance credit. This credit states he does not want people to pay over 8.5% of their income in health insurance premiums. This is also so that people have money left over for rent, utilities, food, and other basic necessities.
Staff Writer – News