![Biden Bill and the Changes to the Income Tax Code](https://watershardy.com/wp-content/uploads/2021/07/Rectangle-3323.jpg)
The White House and Congress are about to make some big changes and the American tax code is about to be rewritten. As part of the Build Back Better agenda, Biden’s tax proposals intend to fund new government investments in infrastructure, education, climate policy, and family programs.
Biden’s massive plan is still being discussed and reshaped by the Democrats, but although no new laws have yet been passed, at least some of the changes are very likely to become reality.
The Ways and Means Committee, which writes tax legislation, will debate and mark up the bill in the coming weeks. In case of approval, the new revenue legislation includes critical tax reforms intended to make the wealthy and corporations pay more, depending on their income.
Below you will find some important highlights on the main potential changes to help you understand how they could impact your income tax liability and what you can do to minimize exposure.
Will the Changes Affect You?
The tax reform has been anticipated since the presidential election and its proposals predict changes in far-reaching tax laws, including income tax, FICA (Social Security) tax, and estate and gift taxation. Take a look at what the possible changes are and who it will affect:
- Adjusted gross income equal to or exceeding $400,000 as an individual taxpayer, or $450,000 for married couples filing a joint return.
- Adjusted gross income equal to or exceeding $225,000 for married couples filing separately, or $425,000 for those filing using the head of a household status.
- IRAs or workplace retirement plans
If you fit in one of the situations above, these are the main changes you can expect to your income tax.
Increase in the Top Tax Rate
After Dec. 31, 2021, the top individual marginal tax rate will increase from the current 37% to 39,6%, reaching back to the pre-2017 top rate. In addition to that, a new 3% surcharge will apply to married couples filing a joint return with modified adjusted gross income (MAGI) exceeding $5 million, and married couples filing separately with incomes above $2,500,000.
IRAs and Retirement Plans
Another significant change is the retirement tax code for wealthy investors. 401(k)-style retirement accounts exceeding $10 million are prohibited from contributing more money to these funds.
While the current law allows for taxpayers to convert IRAs into Roth IRAs or to make contributions to the latter under certain income limitations, this conversion ability will no longer be possible for individuals with taxable income exceeding:
- $400,000 for single taxpayers.
- $450,000 for married taxpayers filing a joint return.
- $425,000 for those filing using the “head of household status”.
These measures will eliminate the “mega backdoor” Roth IRAs strategy, a practice that is often used by wealthy investors to pay fewer taxes on investments.
Do You Need Professional Help to Optimize your taxes?
If you have questions about the Biden bill and the proposed changes to the American tax legislation, we’re ready to help you. If you need more information about what potential changes could apply to your own circumstances and how much they could impact your tax liability, we are available to answer any of your concerns.
Our team at Waters Hardy is highly qualified to advise in any matter concerning tax exposure, risk, impact, and maximization. We are experts who have a full understanding of the US tax code. We help businesses and high-net-worth individuals navigate with confidence and use it to their advantage.
Get the expert help you need to best adapt to the new legislation and use the tax code to your benefit.