President Biden’s Key Income Tax Proposals

Every quarter, Marcum Matrimonial Insider will include a tax focused feature column, analyzing and considering the latest tax updates and outlook, coupled with the impacts and effects in the family law arena. Below you will find a quick summary of President Biden’s key income tax proposals. Please note the following summary is based on the current proposal. Marcum tax specialists will be monitoring developments of Biden’s tax plan closely. Stay tuned for our next quarterly update.

Biden’s Key Income Tax Proposals

INDIVIDUAL INCOME TAX RATES

• The current top tax rate of 37% would be increased to 39.6% for income over $400,000.

LONG-TERM CAPITAL GAINS

• Currently, qualified dividends and long-term capital gains are taxed at a maximum rate of 20%. The Biden plan proposes taxing long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6% on income above $1 million.

ITEMIZED DEDUCTIONS

• The tax benefit of itemized deductions would be capped at 28% for taxpayers with tax rates higher than 28%. The PEASE limitation would be restored on itemized deductions (which phases out itemized deductions) for taxpayers with income over $400,000.

QUALIFIED BUSINESS INCOME DEDUCTION (“QBID”)

• QBID/Section 199A is a current tax deduction of up to 20% on certain income which is available to owners of flow-through entities (S Corporations and partnerships). Biden’s plan would phase out QBID for taxpayers with taxable income over $400,000.

CORPORATE TAX RATES

• The current corporate tax rate of 21% would be increased to 28%. Additionally, the proposal imposes a 15% minimum corporate tax (a so-called minimum book tax) for companies reporting book net income net income over $100 million.

SOCIAL SECURITY TAX

• Currently, Social Security tax (12.4% – half paid by employees and half paid by employers) is only imposed on wages/self-employment income up to $142,800 in 2021. Under the Biden proposal, wages/self-employment income in excess of $400,000 would also be subject to the tax. This has been referred to as a “donut hole” because the income between $142,800 cap and $400,000 would not be subject to the tax.

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