In two separate addresses to the nation, one on March 31st, 2021, and the second on April 28th, 2021, President Joe Biden presented a proposal for his American Jobs Plan and American Families Plan. These addresses included detailed outlines for suggested tax credits for lower-income families and tax increases on the wealthy and corporations.
This article will focus on these proposed tax laws and how they might affect you.
Proposed Tax Credits
- The American Families Plan would extend the American Rescue Plan’s enhanced Child Tax Credit (CTC) of $3,600 for children under age 6 and $3,000 for children ages 6 to 17 through 2025. This credit would have phase-outs for higher income levels.
What this means: Lower-income families with children under 17 will be able to choose between taking the larger tax credit as a refund at tax time or smaller monthly payments throughout the year for each tax year through 2025.
- The American Families Plan would make the American Rescue Plan’s expanded Earned Income Tax Credit (EITC) permanent for workers without qualifying children. This would include doubled phase-in and phase-out rates and higher phase-in and phase-out income levels.
What this means: Low-income working taxpayers will have a larger income threshold with which to qualify for the EITC. The EITC gives a substantial tax credit to working individuals and families to reduce their tax burden.
- The American Families Plan would make the expanded Health insurance Premium Tax Credits provided in the American Rescue Plan permanent.
What this means: Americans who purchased their health insurance through their state’s insurance marketplace will benefit from increased monthly tax credits that go towards the monthly premium for their health insurance.
- The American Families Plan would make the American Rescue Plan’s expanded Child and Dependent Care Tax Credit (CDCTC) permanent. This tax credit covers up to 50 percent of qualifying child care expenses up to $4,000 for one child and $8,000 for two or more children.
What this means: Lower-income working parents will receive an extended tax credit that goes towards qualifying childcare costs, up to $4,000 per year for one child or $8,000 for two children or more.
- The American Families Plan would make the American Rescue Plan’s full refundability of the Child Tax Credit permanent, eliminating the income phase-in of the credit.
What this means: American parents will be able to be refunded the entire Child Tax Credit amount as opposed to the credit merely reducing their tax burden.
- The American Jobs Plan would provide a tax credit for certain onshoring activities and deny expense deductions for offshored jobs.
What this means: Corporations who choose to hire their workforce domestically instead of hiring in foreign countries will be given a tax credit. In contrast, corporations who outsource some of their operations to foreign countries will be denied tax deductions.
Proposed Tax Increases
- The American Families Plan would raise the top marginal income tax rate from 37 percent to 39.6 percent.
What this means: Americans whose income falls into the highest tax bracket will now be taxed at a rate of 39.6% for all income that exceeds $311,026 – $622,051, depending on filing status.
- The American Families Plan would tax long-term capital gains and dividends as ordinary income for taxpayers with taxable income above $1 million.
What this means: Taxpayers who utilize the stock market as a means of passive income will have their profits over $1,000,000.00 taxed as regular income at the new high-income earner rate of 39.6%.
- The American Jobs Plan would increase the federal corporate income tax rate from 21% to 28%.
What this means: Profits made by corporations will be taxed at a higher rate of 28% instead of the current rate of 21%. It is worth noting that Biden has already publicly stated he is willing to compromise at 25%.
These tax increases on high-income earners would raise around 1.5 trillion dollars over ten years to pay for proposed education, child and family leave, and infrastructure expansions through 2031.
Of course, with America’s tax code being as complicated as it is and our gridlocked Congress, this list is neither non-exhaustive nor set in stone. Here at JStevens Accounting, we keep our finger on the pulse of up-and-coming financial, tax, and accounting-related news. We’ll keep you updated on any changes as they happen; stay tuned!