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In recent months, there have been a number of potential tax changes discussed, many of which would be impactful to high income earners. President Biden has proposed tax changes as part of his American Families Plan, Members of Congress have proposed new tax bills this year, and many other provisions have been mentioned over the past few months for potential future legislation. The chart below provides a summary of the key components of the various proposals.

INCOME TAX

Current Tax Law

Potential Tax Law Changes

Recent Status

Top marginal tax rate of 37% Top marginal tax rate of 39.6%
(Taxable Income over $509,300 joint/$452,700 single) Proposed effective date: 2022
US Treasury – General Explanation of Administration’s FY 2022 Revenue Proposals – American Families Plan
Top long term capital gains and qualified dividends tax rate of 20% Ordinary income rates on capital gains and qualified dividends (39.6% top rate) on taxable incomes over $1M
President Biden’s “American Families Plan” – April 2021
3.8% Medicare Tax applies to certain income such as Net Investment Income, self-employment tax, or additional Medicare Tax Expansion of 3.8% Medicare Tax to All income for taxpayers earning more than $400,000, effectively increasing the top tax rate to 43.4%
President Biden’s “American Families Plan” – April 2021
$10,000 Cap on SALT Deduction Eliminate SALT Deduction Cap S. 85 Introduced in the Senate by Sen. Charles Schumer (D-NY) – January 2021
H.R. 946 Introduced in the House of Represenatives by Rep. Bill Pascrell Jr. (D-NJ) – February 2021
Qualified Business Income deducton (199A) of 20% of eligible business income Elimination of QBI Deduction for those making $400,000 or more Previous Biden Proposal
1031 Exchanges may be used to defer gain when real estate is sold and exchanged for like-kind property. Elimination of 1031 exchange deferral when the gain exceeds $500,000
President Biden’s “American Families Plan” – April 2021
Opportunity zones may be used to defer capital gains and also generate future potential tax-free gains Eliminate or Limit Opportunity Zone Tax benefits Previous Biden Proposal
Carried Interest is taxed at long-term capital gains rates on assets held for 3 years Carried Interest taxed at ordinary income rates
President Biden’s “American Families Plan” – April 2021
$2,000 Child Tax Credit, $3,000 for 2021 under the American Rescue Plan Extend $3,000 Child Tax Credit through 2025
President Biden’s “American Families Plan” – April 2021

 

TRUST, GIFT, and ESTATE TAX

Current Tax Law

Potential Tax Law Changes

Recent Status

$11,700,000 gift/estate and generation-skipping exemption Reduce exemption amount to potentially $5M, $3.5M or lower, potentially retroactive
S. 994 Introduced in the Senate by Sen. Bernard Sanders (I-VT) – March 2021
$15,000/individual and $30,000/couple Annual Gift Exclusion per donee $20,000 cap on Annual Gift exclusion per donee, and $50,000 cap to all donees combined
S. 994 Introduced in the Senate by Sen. Bernard Sanders (I-VT) – March 2021
Top estate tax rate of 40% Top estate tax rate of 45% or higher
S. 994 Introduced in the Senate by Sen. Bernard Sanders (I-VT) – March 2021
Cost basis of assets are “stepped up” at death eliminating potential capital gains for heirs Eliminating “step-up” in basis and automatically taxings gains in excess of $1M. Some exceptions apply for inheriting family owned businesses. President Biden’s “American Families Plan” – April 2021
Grantor trusts currently not subject to estate taxes Grantor trusts would be subject to estate tax
S. 994 Introduced in the Senate by Sen. Bernard Sanders (I-VT) – March 2021

 

CORPORATE TAX

Current Tax Law

Potential Tax Law Changes

Recent Status

Corporate tax rate of 21% Corporate tax rate of 28% Previous Biden Proposal

 

PAYROLL TAX

Current Tax Law

Potential Tax Law Changes

Recent Status

6.2% Social Security Tax on wages up to $142,800 Additional 12.4% Social Security tax on wage income over $400,000 evenly split between employees and employers No Additional tax on wages between $142,800 and $400,000 Previous Biden Proposal

INCOME TAX – Current Tax Law

Top marginal tax rate of 37%
Top long term capital gains and qualified dividends tax rate of 20%
3.8% Medicare Tax applies to certain income such as Net Investment Income, self-employment tax, or additional Medicare Tax
$10,000 Cap on SALT Deduction
Qualified Business Income deducton (199A) of 20% of eligible business income
1031 Exchanges may be used to defer gain when real estate is sold and exchanged for like-kind property.
Opportunity zones may be used to defer capital gains and also generate future potential tax-free gains
Carried Interest is taxed at long-term capital gains rates on assets held for 3 years
$2,000 Child Tax Credit, $3,000 for 2021 under the American Rescue Plan

INCOME TAX – Potential Tax Law Changes

Top marginal tax rate of 39.6%
Ordinary income rates on capital gains and qualified dividends (39.6% top rate) on taxable incomes over $1M
Expansion of 3.8% Medicare Tax to All income for taxpayers earning more than $400,000, effectively increasing the top tax rate to 43.4%
Eliminate SALT Deduction Cap
Elimination of QBI Deduction for those making $400,000 or more
Elimination of 1031 exchange deferral when the gain exceeds $500,000
Eliminate or Limit Opportunity Zone Tax benefits
Carried Interest taxed at ordinary income rates
Extend $3,000 Child Tax Credit through 2025

 

TRUST, GIFT, and ESTATE TAX – Current Tax Law

$11,700,000 gift/estate and generation-skipping exemption
$15,000/individual and $30,000/couple Annual Gift Exclusion per donee
Top estate tax rate of 40%
Cost basis of assets are “stepped up” at death eliminating potential capital gains for heirs
Grantor trusts currently not subject to estate taxes

TRUST, GIFT, and ESTATE TAX – Potential Tax Law Changes

Reduce exemption amount to potentially $5M, $3.5M or lower, potentially retroactive
$20,000 cap on Annual Gift exclusion per donee, and $50,000 cap to all donees combined
Top estate tax rate of 45% or higher
Eliminating “step-up” in basis and automatically taxings gains in excess of $1M. Some exceptions apply for inheriting family owned businesses.
Grantor trusts would be subject to estate tax

CORPORATE TAX – Current Tax Law

Corporate tax rate of 21%

CORPORATE TAX – Potential Tax Law Changes

Corporate tax rate of 28%

PAYROLL TAX – Current Tax Law

6.2% Social Security Tax on wages up to $142,800

PAYROLL TAX – Potential Tax Law Changes

Additional 12.4% Social Security tax on wage income over $400,000 evenly split between employees and employers No Additional tax on wages between $142,800 and $400,000

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