Taxes come to the forefront for Americans every January, as their W-2 and 1099 forms arrive by mail for the upcoming tax season. And now, on the threshold of Joe Biden turning 46de President of the United States, it is reasonable to ask what we can expect from his government when it comes to taxes. Will he work with a Democratic Congress to amend sections of the 2017 Tax Cuts and Jobs Act? Will he extend tax credits to certain groups of Americans, such as the elderly? And what will happen to tax benefits when it comes to retirement accounts?
Other issues: what a Biden presidency means for your wallet
Biden’s tax policy is based on his belief that the 2017 tax law benefited the rich and corporate taxpayers at the expense of others, and is expected to go straight to work on parts of the act signed by President Donald Trump, to change.
With that in mind, this is what you can expect after its inauguration on January 20th.
Repeal of sections of the Trump tax law
The 2017 Tax Cuts and Jobs Act made several changes to the tax code that affected U.S. families. These include extending the standard deduction and child tax credit, doubling the exemption from estate duty and reforming the alternative minimum tax. It also reduces taxes on earnings and corporations – the first areas Biden is expected to target.
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What Biden will be able to achieve in the early part of his presidency, however, remains to be seen, said George Birrell, a CPA and founder of TaxHub. “Elected President Joe Biden has stated that he intends to repeal the Trump tax cuts, so I have no doubt that he will take this step at some point,” he said. “While he has promised to repeal these cuts immediately, the process is more complicated than that, and ongoing issues with the pandemic could delay plans for a tax increase.”
Higher taxes for the highest earners
Biden suggested raising the marginal income tax rate from 37% to 39.6% for Americans earning more than $ 400,000. Those who earn more than $ 1 million annually also pay 39.6% on long-term capital gains and investment income according to his plan.
“It will affect their net earnings, but make economic equity more visible,” said Michael Hammelburger, CEO of The Bottom Line Group in Baltimore. ‘Remember, however, that states and cities have been cash-strapped due to the pandemic. So expect more taxes in the coming months as we want recovery with the prospect of vaccinating. [the] majority of the population. ”
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Increasing incentives to save for retirement
Biden said he wants to encourage taxpayers to turn contributions into a retirement plan – either through a 401 (k) plan or a traditional IRA – to encourage lower-income and middle-class Americans to work for the future save. Under current laws, contributions are considered as deductions from total earnings as tax time instead of credits, but Biden wants to reverse that. Under his plan, lower earners would receive larger tax concessions in advance, while they would shrink for higher earners.
“According to Biden’s proposal, every dollar you contribute will not be deductible, but instead 26 cents will be deposited into your retirement account as a corresponding contribution,” said attorney James Maio, director of taxation at Slate Law Group, said. in San Diego. ‘Of course, as before, you will be fully taxable when you withdraw this money. This will benefit those who invest in traditional IRAs or 401ks, thus placing investors on a more equal footing than those making Roth contributions, as credits are always more valuable than deductions. ”
Get help: the answers to the best questions during the tax season
Help for home buyers
Biden offered assistance to first-time home buyers, which would give a $ 15,000 tax credit. It would be paid immediately as credit – essentially aid for a down payment – instead of waiting until tax returns are filed the following year. For the first time, the government considers home buyers to be those who have not owned a home in the past three years.
The downside? The COVID-19 pandemic exacerbated a shortage of household needs, and many people chose to stay put. At the same time, other buyers have entered the market in search of homes to accommodate a new work-at-home-and-learn-home lifestyle, which increases competition – and prices – for homes. A new group of buyers armed with a tax credit for an installment can further increase the selling prices, leaving prospective buyers out of account.
Help for the disabled and the elderly
Disabled and elderly people are two groups that could benefit from a Biden administration, Maio said.
“For disabled Americans, Biden’s tax plan wants to provide benefits through increased tax credits to both employers who employ people with disabilities and to family carers,” he said. “Furthermore, Biden’s plan seeks to expand access to a better life experience (ABLE) account, which provides tax-benefit savings accounts for people with disabilities to help pay for certain expenses.
“Biden has also proposed various tax changes to help senior citizens. First, his plan calls for increased tax benefits for elderly Americans who pay their long-term insurance with their retirement savings. In addition, he wants to allow low-wage workers over the age of 65 to claim the tax revenue. Currently you cannot claim the credit if you are over 65. ”
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This article originally appeared on GOBankingRates.com: How Joe Biden’s Tax Plan Can Affect You