How individual and business tax rates, credits, and more could change under the Biden presidency
Updated from insights originally published 11/18
In his 2020 campaign platform and other venues, President-elect Joe Biden outlined several potential tax changes. With Democrats shortly assuming control of the House and Senate, the President-elect’s priorities should have a greater chance of being pushed forward.
The Biden administration has pledged to prioritize tackling the coronavirus pandemic in 2021 using major CARES-type legislation. However, recent events may result in new priorities for the next Congress to address. Regardless, we expect that many of Biden’s priorities will move forward.
Summarized below are some of the notable tax changes proposed or supported by the Biden campaign, as outlined by the campaign site, a Tax Foundation analysis, and information provided by Bloomberg Tax & Accounting. We will continue to share alerts and updates on tax-pertinent developments as they unfold.
Potential tax changes impacting individuals
- Individual tax rate increased: The top individual tax rate (for taxpayers with incomes greater than $400,000) would increase from 37% to 39.6%. This would return the maximum individual tax rate to its pre-Tax Cuts and Jobs Act (TCJA) threshold.
- Itemized deductions: Itemized deductions would be limited for taxpayers with incomes exceeding $400,000 so their effective tax rates would not fall below 28%. The $10,000 SALT limitation would be removed.
- Section 199A: The qualified business income deduction (Section 199A) would be phased out for individuals with income over $400,000. Additionally, the deduction would be disallowed for certain real estate investors.
- Tax rates increased on certain long-term capital gains and qualified dividends: Taxpayers with more than $1 million in income would be taxed at the ordinary income rate of 39.6% on any long-term capital gains or qualified dividends.
- Tax credits: The new administration would also make changes to various tax credits, including:
- Reinstituting the First-Time Homebuyer’s Tax Credit (up to $15,000 to first-time homebuyers)
- Expanding the Child and Dependent Care Tax Credit for qualifying taxpayers by increasing the credit rate from 35% to 50% of qualifying expenses and increasing the maximum qualified expense amount from $3,000 to $8,000 (up to $16,000 for two or more children)
- Expanding the Earned Income Credit and the Child Tax Credit
- Estate and gift tax changes: Tax rates on estate and gifts would increase from 40% to 45%, and the exemption threshold would decrease to $3.5 million (from $11.7 million per individual). In addition, any assets inherited from a decedent would no longer receive a step-up in basis.
- Student loan forgiveness: Student loans would be forgiven, income tax-free, after borrowers have been enrolled in an “income-based” repayment plan for 20 years.
- Carried interest: Carried interest would no longer be given preferential treatment, regardless of the holding period, and would be taxed as ordinary income.
Potential tax changes impacting businesses
- Corporate tax rate increased: The corporate income tax rate would be raised from 21% to 28%.
- Surtax imposed on corporations that offshore jobs: Corporations that place manufacturing or service jobs offshore to sell products or services back into the U.S. would be subject to a 10% surtax on these activities, making the effective tax rate on such activities 30.8%.
- Minimum book income tax on corporations: Corporations with $100 million or more in book income would pay the greater of the corporation’s regular income tax or a 15% minimum tax. This minimum tax would allow for the use of foreign tax credits and net operating losses (NOLs).
- GILTI tax doubled: The minimum tax rate on Global Intangible Low Tax Income (GILTI) imposed on owners of certain foreign entities would increase from 10.5% to 21%.
- Payroll tax increased: The Social Security tax would increase to 12.4% for individuals making more than $400,000. This amount would be split equally between employers and employees. Wages between $137,700 and $400,000 would continue to be exempt from payroll tax.
- Like-kind exchanges: Section 1031 treatment would be disallowed for taxpayers with incomes exceeding $400,000.
- Tax credits: Numerous tax credits would face changes, including:
- Expanding various renewable energy tax credits, the Low-Income Housing Tax Credit, the Work-Opportunity credit, and the premium tax credit of the Affordable Care Act
- Expanding and making permanent the New Markets Tax Credit
- Creating a Manufacturing Communities Tax Credit to assist businesses impacted by layoffs or government closures
- Providing tax credits related to retirement savings plans for small businesses
- Offering a 10% “Made in America” tax credit for certain activities aimed at restoring, revitalizing, or expanding certain businesses domestically.
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
Insight10 Questions: Your retirement accountsDana FriedWhat are 2022’s contribution limits? Have you considered all IRA types? Are you on top of RMDs? Read our insights and advice on these questions and more.
InsightTexas Supreme Court clarifies proper method of sourcing franchise tax receipts from servicesJohn Iannotti, Lance RothenbergRead what the Texas Supreme Court said in this case on how to properly source receipts from services while apportioning income and determining tax liabilities.
InsightNew Jersey updates guidance on tax treatment of virtual currencyLance Rothenberg, Harry GolematisTechnical Bulletin TAM-2015-1(R) covers corporation business tax, gross income tax, and sales and use tax for currencies like Bitcoin. Read more.
InsightCalifornia grants one year reprieve on tax basis capital account reportingMarietta Probst, Krista Schipp
On-demandPartnership tax concerns to think through in 2022Join CohnReznick’s National Tax Team for a high-level overview and update of new compliance developments. Members of our international, state and local, and federal tax teams will focus on the areas your company needs to watch.