President Biden Is Considering Big Tax Hikes – What Would They Mean For You?
President Joe Biden is reportedly working on an even bigger spending bill after the successful passage of his $ 1.9 trillion easing bill.
And this new bill could go hand in hand with the first federal tax hike in nearly three decades, as the new package is expected to include a corporate tax hike and an increase in the income tax rate for high earners.
While you may be wondering if you can get another stimulus check to settle your bills or pay off debts, you may soon see some significant changes in tax law, leaving some with higher tax rates and others with more perks.
While a package has not yet been put together, these are the tax changes that the current administration is considering:
What is Biden up to and who will it affect most?
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Earlier this month, White House press secretary Jen Psaki told reporters that Biden's next proposal aims to fulfill components of his "Better Back Down" agenda from the 2020 presidential campaign, even though "there is still no package in place."
And taking into account his promises made last year, Psaki added that the tax hike will only affect households earning $ 400,000 or more.
Sources told Bloomberg that in addition to raising corporate and high-income tax rates, Biden's team is currently considering increasing the capital gains tax rate for those who earn more than $ 1 million a year.
It is also considering expanding inheritance tax and “reducing” tax preferences for transit companies that are currently not subject to corporate income tax.
If Biden manages to deliver on all of his campaign path promises, they would collectively increase federal revenues by $ 2.1 trillion over the next decade, according to an analysis by the Tax Policy Center.
Many of the changes Biden and his administration are pondering would undo some tax changes made in President Donald Trump's 2017 Tax Cuts and Employment Act. Because of this, Biden is likely to receive a kickback from both Republicans and moderate members of his party.
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Well, I don't make $ 400,000. And me?
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Psaki recently made it clear that the $ 400,000 threshold applies to households, not individuals. So, if you're making $ 200,000 and your partner brings in the same or greater amount, you could expect a tax hike in the near future.
For families in this income bracket, Biden plans to increase the top tax rate from the current 37% to 39.6%. In addition, the itemized deductions are limited to 28%.
On the upside, Biden may have further tax cuts for low-income families, as he did in the relief bill with the expanded child tax credit.
The maximum tax credit for children and dependents could increase from $ 3,000 to $ 8,000 and capped at $ 16,000 for more than one dependent. That means parents can soon expect to get even more money for their children, whether they need it for direct household expenses or for educational purposes.
That extra infusion of money could allow some parents to use the money to get something like a safe, kid-friendly debit card or an easy-to-manage investment app that kids can use to learn important money management lessons.
Not only families benefit from this
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Biden has plans for relief for lower income households in general, not just families.
If you are still working to repay your student loan decades after you graduate from school, student loan debt relief proposals could give borrowers like you more generous forgiveness and deferment rules.
The most recent tax relief bill provided for a tax break that would allow loans to be granted without a tax liability being imposed.
Affordable access to health insurance would also be expanded and refundable health insurance premium tax credits would be offered to limit families' premium spending to no more than 8.5% of their income.
And finally, Biden is looking to reintroduce the First Time Buyer Tax Credit, which offers first time home buyers a maximum of $ 15,000 in refundable and advanceable credit on their home purchase – meaning you don't have to wait to file your tax return the following year to order taxes to get it.
What about state taxes?
Treasury Secretary Janet Yellen recently spoke out to reassure Americans who feared their taxes would suddenly rise. Tax increases are "likely to move slowly over time," she told CNBC.
However, that doesn't necessarily mean you won't see any tax hikes this year. Twenty-six states and the District of Columbia passed notable tax changes that went into effect Jan. 1, according to the Tax Foundation.
What to do if you need extra cash for taxes owed
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If you are concerned about how a higher tax burden could affect your budget, there are a few steps you can take right now to free up some funds.
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Reduce the cost of your debt. Did your credit card get you through the pandemic? If so, the interest is likely starting to weigh you down. You can make it more manageable by folding your balances into a single debt consolidation loan at a lower interest rate.
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Downsize your insurance bills. If you don't drive that much due to the pandemic, your auto insurance may be ready to give you a discount on your tariff. But it might be time to look for a better deal. And while you're at it, you can also save hundreds on your homeowner insurance by comparing prices to find a cheaper rate.
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Cut back on your expenses or consider a side job. Do you have a hobby or a special skill? Turn it into a sideline for extra income. If you've received incentive money and need it to purchase household goods or other necessities, you can download a free browser extension that will automatically search the internet for better prices and coupons when you shop online.