What are Biden’s plans and who will it impact most?
Earlier this month, White House press secretary Jen Psaki told reporters that while “there isn’t a package yet”, Biden’s next proposal will aim to fulfill components of his “Build Back Better” agenda from the 2020 presidential campaign trail. The spending plan would include trillions of dollars to invest in infrastructure, create millions of clean-energy jobs and inject more money into things like housing and health care.
And keeping in mind his promises last year, Psaki added the tax increase will only impact those households making $400,000 or more.
“The president remains committed to his pledge from the campaign that nobody making under $400,000 a year will have their taxes increased,” Psaki said. “His priority and focus has always been on people paying their fair share and also focusing on corporations that may not be paying their fair share either.”
Sources told Bloomberg that in addition to raising the corporate and high-earner tax rates, Biden’s team is currently considering:
- an increase in the capital gains tax rate for those who earn more than $1 million a year
- expanding the estate tax
- “paring back” tax preferences for pass-through businesses, which are not currently subject to corporate taxes
Many of the changes being mulled over by Biden and his administration would reverse some tax changes made in President Donald Trump’s 2017 Tax Cuts and Jobs Act. Because of that, Biden is likely to receive pushback from both Republicans and the more moderate members of his party.
Well, I don’t make $400K. What about me?
Psaki recently clarified that the $400,000 threshold will be for households, not individuals. So if you’re making $200,000 and your partner brings in the same amount or more, you could be in for a tax hike in the near future.
For families that fall within that income bracket, Biden’s plans include raising their top tax rate to 39.6% from its current 37%. And it will also see their itemized deductions capped at 28%.
There’s a possibility that Biden could add more tax cuts for lower-income families, like he did in the relief bill with the expanded child tax credit.
The maximum child and dependent tax credit could rise from $3,000 to $8,000, capped at $16,000 for more than one dependent. That means parents may soon expect to receive even more money for their kids, whether they need it for immediate household expenses or educational purposes.
This extra cash infusion could allow some parents to set aside money for their children, maybe in a safe and secure kid-friendly debit card, or an easy to manage investing app, to help teach children important lessons about managing money.
It’s not just families who’ll benefit
Biden has plans for relief for lower-income households in general, not just families.
If you’re still working on paying down your student loans decades after leaving school, proposals for student loan debt forgiveness, could grant borrowers like you more generous forgiveness and payment-deferral rules. After 20 years, Biden’s plan would see balances forgiven without imposing any tax liability.
Affordable health insurance access would also be expanded, offering refundable tax credits on health insurance premiums to limit families’ spending on premiums to no more than 8.5% of their income.
And finally, Biden wants to reinstate the first-time homebuyer tax credit, which provides first-time buyers with a maximum of $15,000 as a refundable and advanceable credit when they purchase their home — meaning you wouldn’t have to wait until you file your taxes the following year to get it.
What about state taxes?
Treasury Secretary Janet Yellen recently spoke out to reassure Americans worried their taxes would suddenly go up. Any tax hikes will “probably phase in slowly over time,” she told CNBC.
But that doesn’t necessarily mean you won’t see some tax increases this year. Twenty-six states and the District of Columbia have passed notable tax changes that took effect Jan. 1, according to the Tax Foundation.
What to do if you need extra money for taxes owing
If you’re worried about how a bigger tax bill may impact your budget, there are a few things you can do to free up some funds right now.
Cut the cost of your debt. Has your credit card been carrying you through the pandemic? If so, the interest is probably 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.
Shrink your insurance bills. If you’re not driving as much because of the pandemic, your car insurance company may be willing to give you a discount on your rate. But it might be time to shop around for a better deal. And while you’re at it, you also might save hundreds on your homeowners insurance by comparing rates to find a lower price.
Trim your spending or consider a side-hustle. Have a hobby or specialized skill? Turn it into a side hustle to bring in extra income. If you received some stimulus money and you need it to purchase household good or other necessities, you can download a free browser extension that will automatically scour the web for better prices and coupons whenever you shop online.