Taxes go forward for Americans every January, as their W-2 and 1099 forms arrive in the mail for the next tax season. And now, at Joe Biden’s door becoming the 46º President of the United States, it is reasonable to ask what we can expect from your government when it comes to taxes. Will he work with a Democratic-controlled Congress to amend parts of the 2017 tax and employment reduction Act? Will it expand tax credits for certain groups of Americans, such as the elderly? And what about tax benefits when it comes to retirement accounts?
Other issues: What does a Biden presidency mean for your portfolio
Biden’s tax policy is based on his belief that the 2017 tax law benefited wealthy and corporate taxpayers at the expense of others, and he is expected to start working immediately to change parts of the law signed by President Donald Trump.
With that in mind, here’s what to expect from your January 20 inauguration.
Repealing Parts of the Trump Tax Law
The 2017 Tax and Employment Reduction Act made several changes to the tax code that affected American families. This included expanding the standard deduction and child tax credit, doubling the property tax exemption and reforming the alternative minimum tax. It has also reduced corporate taxes and higher earnings – the first areas that Biden must target.
What do you need to file taxes? A list of all necessary documents
What Biden will be able to accomplish in the early part of his presidency is yet to be seen, however, said George Birrell, an accountant and founder of TaxHub. “President-elect Joe Biden has stated that he plans to repeal Trump’s tax cuts, so I have no doubt that he will do that at some point,” he said. “Although he promised to revoke these cuts immediately, the process is more complicated than that and the ongoing problems with the pandemic could delay plans to raise taxes.”
Higher taxes for those who earn more
Biden proposed to increase 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 would also pay 39.6% on long-term capital gains and investment income under their plan.
“It will affect your bottom line, but it will make economic equity more visible,” said Michael Hammelburger, CEO of The Bottom Line Group in Baltimore. “However, keep in mind that states and cities are running out of money due to the pandemic, so we expect more taxes in the coming months as we move towards recovery with the prospect of vaccinating. [the] majority of the population. “
Read more: How much is President-elect Joe Biden worth?
Growing incentives to save for retirement
Biden said he wants to change the way taxpayer contributions to a retirement plan – whether through a 401 (k) plan or a traditional IRA – are encouraged to encourage low-income and middle-class Americans to save for the future. Under current laws, contributions are considered deductions from general earnings at the time of tax instead of credits, but Biden wants to reverse that. According to his plan, those who earn less would get greater tax incentives in advance, while they would shrink for those who earn more.
“Under Biden’s proposal, every dollar you contribute will not be tax deductible, but instead, for every dollar you contribute, 26 cents will be deposited in your retirement account as an equivalent contribution,” said attorney James Maio, tax director of the Slate Law Group in San Diego. “Of course, as before, when you finally withdraw that money, it will be fully taxed. This would benefit those who invest in traditional IRAs or 401k, thus placing these investors on an equal footing with those who make Roth contributions, since credits are always more valuable than deductions. “
Get help: answers to key questions during the tax season
Assistance for home buyers
Biden proposed assistance to home buyers for the first time, which would give them a $ 15,000 tax credit. It would be paid out as a credit immediately – essentially aid for an initial payment – instead of waiting until tax returns are completed the following year. The government considers first-time home buyers to be those who have not had a home in the past three years.
The downside? The COVID-19 pandemic has exacerbated the already short housing stock, with many people choosing to stay. At the same time, other buyers have entered the market in search of homes that accommodate a new lifestyle of working from home and learning from home, increasing competition – and prices – for homes. A new group of buyers armed with a tax credit for an initial payment could further increase sales prices, keeping potential buyers at bay.
Help for the disabled and the elderly
The disabled and the elderly are two groups that can benefit from a Biden government, Maio said.
“For Americans with disabilities, Biden’s tax plan aims to provide benefits through increased tax credits for employers who hire people with disabilities and for family caregivers,” he said. “In addition, the Biden plan aims to expand access to Achieving a Better Life Experience (ABLE) accounts, which provide tax-saving savings accounts for people with disabilities to help pay certain expenses.
“In addition, Biden has proposed several tax changes to help the elderly. First, his plan provides for greater tax benefits for elderly Americans who pay long-term care insurance with their retirement savings. In addition, he wants to allow low-income workers over 65 to claim income tax credit. Currently, you cannot claim the credit if you are older than 65. “
More from GOBankingRates
This article was originally published on GOBankingRates.com: How Joe Biden’s tax plan can affect you