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President Joe Biden campaigned for a promise to raise taxes for wealthy Americans and businesses. His core tax proposals would increase taxes for individuals with annual incomes greater than $ 400,000 and increase corporate tax rates from 21% to as much as 28%.
Although his tax plan will primarily affect the bottom line of the richest Americans, low- and middle-income households can benefit from increased tax credits.
To understand how these policy changes and suggestions could affect you, use our calculator to determine how much you could pay under Biden’s tax plans.
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Tax Contributions & Deductions
Under Biden’s proposed tax plan, you’ll pay $ 5,600 more than the current federal tax plan under Trump
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Comparison of the two tax results
European summer time. Federal taxes
European summer time. Federal Refund
- Your marginal federal income tax rate stayed at X%
- Your effective tax rate is now x% (previously y%).
Disclaimer: This tool is for educational purposes only and should not be used for tax preparation purposes. Your actual tax payment or refund may depend on several factors. In this tax calculation, certain deductions and credits are omitted for the sake of simplicity. We encourage you to seek advice from a tax professional to determine how changes in tax legislation would affect your financial situation.
Frequently Asked Questions (FAQs) about the Biden Tax Plan
Will these changes affect the 2021 tax season?
The changes won’t affect the 2020 tax returns that most Americans will file in the spring of 2021. Currently, most of Biden’s tax plans are proposals and have not yet been voted on in Congress.
However, Biden signed the American Rescue Plan Act in March, which temporarily expands Child Tax Credit, Child and Care Credit, and Income Tax Credit for the 2021 tax year only.
Will the federal tax bracket change?
Yes, but only for the richest Americans. Individuals earning more than $ 400,000 a year would see a significant change under Biden’s tax plan. The top tax rate would return from the current top rate of 37% to the top rate of 39.6% before the Tax Reduction and Employment Act.
If you earn more than $ 1 million annually, it increases the long-term capital gains tax rate, which is a special tax levied on assets held for more than a year and qualifying dividends.
According to current tax law, capital gains are taxed at 0%, 15% or 20% depending on taxable income and registration status. An additional 3.8%, net investment income tax, would be levied on high-income individuals whose 2020 adjusted gross income is above $ 200,000 ($ 250,000 for married joint taxpayers). Biden’s tax plan calls for an increase in the capital gains tax rate to 39.6% for those earning $ 1 million or more. That means those who earn more could be taxed up to 43.4%, including the additional 3.8% tax.
What happens to tax credits?
Biden has no plans to increase taxes for low- to middle-income taxpayers. However, this group can expect some tax credits to change in 2021, which means they may have more cash in their pockets. These include the child allowance, the child and care allowance and the income tax allowance.
Biden also plans to restore the homebuyer tax credit, introduce a tax credit for those saving into a 401 (k) retirement plan, and create a tax credit for renters.
What are the Child Tax Credit Advanced Changes?
Biden’s American Rescue Plan increased the child tax credit for tax year 2021 only. Eligible child credit increased from up to US $ 2,000 to US $ 3,600 for children under 6 years of age and up to US $ 3,000 for children 6-17 years of age. The credit is now fully refundable.
Previously, the balance was only partially refundable and was limited to a maximum of $ 2,000 per eligible child under the age of 17.
What are the Child and Dependent Loan Changes?
For 2021, Biden’s tax plan increased eligible expenses for children and dependents from up to $ 3,000 per child to up to $ 8,000 per child (up to a maximum of $ 16,000 for two or more dependents).
Previously, taxpayers could deduct $ 3,000 ($ 6,000 for two or more dependents) from dependent care costs on their federal income tax returns.
The dependent must be under 13 years of age, a spouse or other authorized person who cannot take care of himself. The tax credit allowed depends on the taxpayer’s income. This change only applies to the 2021 tax year.
Computer methodology
This calculator compares Biden’s top tax proposals against the 2020 Tax Act to show the expected tax changes. It does not compare any other income, deduction, or credit that is expected to remain unchanged even after all of Biden’s tax plans are passed. The submissions are based on information from the 2017 Tax Cuts and Job Acts, 2020 tax brackets, and Biden’s core tax policy as follows:
Biden’s main tax guidelines and suggestions
- Increase in tax rate from 37% to 39.6% for households with income of $ 400,000 or more;
- Child tax credit increased from $ 2,000 to $ 3,000 ($ 3,600 for those under 6 years of age);
- Increase child and care loan from $ 3,000 to $ 8,000 per dependent (from $ 6,000 to $ 16,000 for multiple dependents); and
- Limit individual deductions to 28% for households with incomes greater than $ 400,000.
Limitations of this calculator
- The estimated taxes or anticipated refunds do not take into account the income tax credit (EITC), additional Medicare taxes levied on high earners, capital gains taxes, or taxes on self-employment, which can affect your tax situation.
- The child and care loan does not take into account relatives and spouses who are over 13 years old and who are physically or mentally unable to support themselves.
- We have changed the tax brackets for 2020 to reflect Biden’s tax proposals. For single persons and taxpayers with heads of household, we’ve adjusted the 35% tax bracket to reflect the $ 400,000 income limit. For married couples filing together, we’ve adjusted the 32% and 35% tax brackets to reflect the $ 400,000 income limit. For all taxpayers, we’ve replaced Biden’s proposed 37% tax increase of 39.6% for income over $ 400,000.