2021 TAX FILING

Biden tax plan calculator: how could your taxes and credits change?

President Biden’s new tax proposals would see the wealthiest and corporations paying more, while benefiting the majority of households through tax credits.

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Biden tax plan calculator: how could your taxes and credits change?
JONATHAN ERNST REUTERS

The White House has put forth its plans to invest $4 trillion in infrastructure that will create jobs and help workers go to work. In order to pay for that the Biden administration will raise taxes on the wealthiest individuals and corporations.

The vast majority of US taxpayers though will not see their tax bill go up and many could essentially see their tax burden reduced to less than zero after tax credits and deductions. The American Rescue Plan created temporary year-long tax benefits for many Americans and if the American Families Plan gets through Congress some provisions will be extended.

Who could see their taxes going up under the Biden tax plan?

Currently Biden has laid out how he wants to tax wealth the same as income reversing decades of earned income being taxed more than capital gains on investments. However, the legislation still needs to get through Congress where some of the increases have even met resistance from Democratic senators, most Republican lawmakers don’t want to see any increases.

For individual taxpayers, the proposal as it is now would see the highest tax bracket rate, for those making over $400,000, increase from 37 percent to 39.6 percent. It would also raise the capital gains tax rate for those earning at least $1 million annually from 20 percent to 39.6 percent.

Furthermore, the estate tax would essentially be increased with the removal of the “step-up” on assets that are inherited. When an asset is passed on after death the valuation is adjusted to the current value but no capital gains taxes are paid until the asset is sold. Under Biden’s current proposal inherited assets could be hit with a capital gains tax bill and an estate tax bill which the Tax Foundation has calculated would be a 61 percent tax on the wealth of high-earning taxpayers.

On average over half the population could see zero tax bill

The American Rescue Plan included several tax provisions that will help low- to middle-income American households in the 2021 fiscal year. Included was a third round of stimulus checks sending every adult and dependent a $1,400 stimulus check in eligible households. Taxpayers with children can take advantage of a temporarily expanded Child and Dependent Care Credit, as well as the enhanced Child Tax Credit.

Starting in July, the latter will send families monthly direct payments for $250 to $300 per child depending on age. If it were made permanent this credit would benefit around 89 percent of children in the US. Another tax credit that was expanded for 2021, for those with or without children and targeted at people with low to moderate incomes, is the Earned Income Tax Credit.

All together these provisions, along with others, could see on average those with an annual income of less than $75,000 having a zero tax bill for 2021 according to an estimate by the nonpartisan Joint Committee on Taxation. Additionally, since some are refundable credits, they could show up as a tax refund next year leaving some with extra money in their pocket.

Congressional Democrats are pushing to make the Child Tax Credit changes permanent, however President Biden has only expressed interest in extending it until 2025. In his first speech to a joint session of Congress he did call for making the Earned Income Tax Credit permanent.

As lawmakers hammer out the details of the legislation over the coming months it will be seen what stays, what gets left out and if new measures are put into the final bills. Until then we’ll just have to wait and see.