President Joe Biden campaigned on promises that would change the way people and corporations are taxed in this country. Now that he’s occupying the Oval Office, there’s a strong likelihood that some new laws and policies will alter what you’ll wind up paying the IRS. Let’s take a look.
One of Joe Biden’s campaign promises was to raise taxes on corporations and the wealthy. Specifically, the Biden tax plan targets individuals who earn $400,000 per year. He has also indicated that he would raise the corporate tax rate from 21 to 28 percent.
Biden has also expressed interest in increasing the amount of taxes paid on inheritances. Currently, individuals can inherit up to $11.7 million without any estate tax liability. Biden has proposed lowering that cutoff to $3.5 million. The existing estate tax laws will remain in place until 2025.
While Biden’s tax plan will increase the taxes of the wealthiest Americans, a big part of Biden’s proposed coronavirus stimulus package, which is still pending approval, involves giving tax relief to families. Specifically, his plan is to increase access to the child tax credit for poor and middle-class American families. About 48 million tax filers claimed the child tax credit in 2019, so this could put more money back in families’ pockets on a massive scale.
A tax credit is different from a tax deduction in that it reduces a tax bill dollar for dollar. You simply subtract the amount of the tax credit from your tax liability. It is a direct way of allowing families to hold on to their cash. Biden has proposed expanding the tax credit for low-income households and raising it to $3,000 per child and $3,600 for children under 6 years old. Currently, the child tax credit is $2,000, but the way it is applied really only benefits middle-class and higher-income families.
As it stands right now, people who earn $2,500 or less per year are ineligible for the child tax credit. Once a low-income person starts earning above $2,500, the child tax credit is incrementally applied at 15 cents on the dollar. As it stands now, individuals earning up to $200,000 per year or double income households of $400,000 can claim the full child tax credit.
All of these proposed changes still in play, of course. None of them will be instated quickly enough to affect your 2020 tax return. As always, I’ll be keeping an eye on these developments and sharing my thoughts with you.