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Article | State and Local Tax, Tax

Projected Tax Positions And Policies Under A Biden Administration

President Biden has previously expressed his intent to modify numerous current and past tax policies while he was on the campaign trail. Since the Democratic party now has narrow control over both the House and Senate, the possibility for tax change is much more likely. Many professionals believe that President Biden, with the help of Congress, will introduce future legislation that contains significant tax policy and position changes.

In fact, some of these proposed changes have already been introduced. A $1.9 trillion COVID-19 relief package has been introduced to the House, and they expect to vote on the legislation as early as Friday. The relief bill is designed to further address the growing needs resulting from the global pandemic. The current proposal includes the following items that would have an immediate impact:

  • Additional economic impact payments of $1,400 that would bring the most recent stimulus payment to $2,000 per person
  • Expansion of the Child Tax Credit to $3,000 per child and a clause to make this credit entirely refundable
  • Increase of the Earned Income Tax Credit to 3x the current level and extend eligibility for workers without children
  • Extension of the temporary moratorium against evictions and foreclosures through September
  • Extension of enhanced unemployment benefits that are set to expire at the end of March

In addition to the current relief proposal, there is speculation that the Biden administration will seek to make adjustments to the 2017 Tax Cuts and Jobs Act (TCJA) which modified numerous tax laws and introduced new business credits and deductions. TCJA has been criticized by both Republicans and Democrats and much of Biden’s policy positions before the election was centered around the reversal or elimination of various TCJA provisions. If Biden’s proposals gain momentum, it is possible that there will be a repeal of TCJA sections that benefit high-income filers, generally resulting in increased taxes for individuals earning over $400,000.

President Biden has also expressed support for an increase to a 28% corporate tax rate and a 15% minimum tax on book income of entities that report net income of more than $100 million (but owe no U.S. income tax). Additionally, Biden has proposed raising the tax rate on ordinary income, capital gains, and dividends; phasing out the deduction for pass-through business income for certain taxpayers; and increasing the impact of the estate tax. An outline of some of the changes proposed are detailed below:

  • Individual taxpayers making over $400,000 may see an increase in their top income rate from 37% to 39.6%
  • Itemized deduction caps at 28% and restoration of pacing limitations
  • Modification or elimination of the SALT cap from TCJA which capped state and local tax deductions to $10,000
  • Elimination of preferential qualified dividend and long-term capital gain rates for taxpayers above $1 million in income
  • Elimination of preferential treatment for real estate entities granted under TCJA, including the application of 1031 exchanges for taxpayers above certain income thresholds
  • Increase of corporate tax rate from 21 to 28% or back to pre-TCJA rates of 35%
  • Expansion of Social Security tax to those making over $400,000
  • Decrease of the gift, estate, and generation-skipping transfer tax from $11.7 million down to prior rates (expected to be around $3.5 million but no clear amount has been stated)
  • Elimination of a basis step-up at death for appreciated assets, though there is uncertainty if there would be a complete elimination or a threshold limitation
  • Restrictions on grantor retained annuity trusts (GRATs) and generation Skipping Tax (GST) trusts

It is important to note that no detailed tax policy beyond the COVID-19 relief package has been formally announced. More information on President Biden’s proposals may be available when his first budget provisions are sent to Congress.

While there is still much uncertainty regarding future tax legislation, we encourage you to reach out to your HBK Tax Advisor to discuss how these potential changes may impact your business or personal taxes.

About the Author(s)

Sarah N. Gaymon, CPA
Sarah Nicole Gaymon, CPA is a Senior Manager in the Tax Advisory Group at HBK CPAs & Consultants located in the West Palm Beach office providing trust and estate support services for the CPAs in all HBK offices. Sarah’s specialty and focus areas include tax compliance and tax consulting for high net worth individuals, family groups, trusts, estates, and gift tax issues. In addition, Sarah specializes in fiduciary accounting for trusts and estates.

Sarah regularly consults on family wealth, succession and estate planning. She also has experience in US planning and compliance related to foreign trusts, foreign estates, and individual foreign tax compliance and residency issues.

Cassandra Baubie, JD
Cassandra Baubie is an Senior Associate at HBK CPAs & Consultants and is a member of its Tax Advisory Group (TAG). Cassandra joined HBK in 2017. She works in the firm’s Youngstown, Ohio office. She has experience in tax law research and writing. Prior to joining HBK, she worked for Jurist.org, a global legal news organization, and was a member of the University of Pittsburgh Tax Law Review Journal. Cassandra also worked for the University of Pittsburgh School of Law’s Low-Income Tax Clinic where she performed IRS litigation and Tax Court work and provided compliance work for low income individuals and businesses. Cassandra focuses on issues pertaining to State and Local Taxation (SALT), as well as flow through entity taxation. She has been involved in numerous sales and use tax, franchise tax, and corporate income tax audits, VDA’s, and refund requests. She focuses on complex sales and use tax compliance planning, nexus studies and on-site review and training for all SALT related issues, and has managed various engagements as the in-charge team member and has significant experience in multi-state tax issues.

Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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