It’s Official like a referee with a whistle that there is going to be a new commander in chief in town. As Americans await the change in administration on January 20, 2021 from Donald J Trump to Joe Biden, many are wondering what this change is going to mean for their bottom line.
Being aware of the changes that could come ensures that you can leverage them or plan for any potential hits. Below are a few proposals the President-Elect campaigned on that could potentially affect you and your finance. Ready? Let’s dig into it!
Biden’s Income Taxes Plans
As POTUS, Biden hopes to make many changes to the income tax system, focusing on making it more progressive (the more you earn, the more taxes you pay as a percentage of your income). The Tax Policy Center has further stated that Biden’s proposal will increase taxes by $2.41 trillion within the next decade.
If his policies take effect as pre-planned, in 2022:
- Households earning between about $50,000 and 90,000 will receive an average tax cut of around $6,700.
- Higher-income households ($330,000–790,000) will be hit with an average tax increase of $98,000.
- The top 1% of earners (over $790,000) will also pay an average tax increase of $265,000.
Biden’s Proposals – What We Know
Many of Joe Biden’s income tax reforms are aimed at families; therefore, several single individuals and couples without kids on both the lower and middle-income ranges won’t enjoy all the benefits of these changes.
Child Tax Credit would increase from the current maximum limit of $2,000 to $3,000 for each eligible child under age 17. Biden’s plans also propose an additional $600 bonus credit for under 6 kids and make the credit fully refundable.
His proposals would also increase the Child and Dependent Care Tax Credit to assist families with expenses such as daycare. The current max credit limit is $3,000 ($6,000 for multiple dependents) for qualifying expenses. Senator Biden will raise this limit to $8,000 ($16,000 for multiple dependents) and also increase the maximum reimbursement rate – up to 50% of your qualifying expenses as against the current 35%.
Biden proposes to revive the First-Time Homebuyers Tax Credit, now referred to as the First Down Payment Tax Credit. It was designed during the Great Recession to encourage individuals to purchase homes again. According to his plan, eligible first-time homebuyers will be given up to $15,000 in tax benefits when they buy a home.
On the flip side of these tax benefits, as we mentioned earlier, are tax increases that are aimed at higher-income earners. Here are just a few:
- For households earning over $400,000, tax rates would rise from 37% to 39.6%.
- Long-term capital gains and qualifying dividends of households earning over $1 million would be taxed at the normal income tax rate of 39.6%, as against the current 20%.
The Facts
Always ensure that you leverage all your qualifying tax credits and deductions. When it’s time to file your taxes, these new changes (if they take effect) can become confusing. If you have a less complicated tax situation and feel comfortable working with a tax software, then go ahead and get yourself a concise software. However, if you feel that you’re going to take a hit (tax-wise) or you’re being too cautious not to mess anything up with your taxes, then solicit the help of a tax Endorsed Local Provider.
Biden’s Student Loan Forgiveness Plans
Millions of Americans are stuck in the over $1.5 trillion student loan crisis, which has become a huge burden. The Corona Virus outbreak has equally done more harm than good. Biden, during his campaign, like many other presidential aspirants, made promises on student loan forgiveness. And since his election, Biden has reiterated his commitment to cancel some student loan debt, but how and how much remains unclear.
Biden’s Proposal – What We Know
The President-Elect was a supporter of legislation passed in Parliament earlier in 2020 that proposed student loan forgiveness ($10,000 per borrower) as a section of a COVID-19 relief bill. However, this bill wasn’t backed by the Republican-controlled Senate.
Some Democrat leaders are pushing Biden to revoke congressional recommendations by writing an executive order that’ll cancel up to $50,000 per borrower, though not everyone is confident that the president has such powers to execute this. (Well, the Supreme Court can clarify this further.)
The Facts
The government already has in place multiple student loan forgiveness schemes (The Teacher Loan Forgiveness program, The Public Service Loan Forgiveness program, etc.), and none are all good at actual loan forgiveness. This is largely due to the tough requirements. Furthermore, there isn’t any way to know what Biden’s student loan forgiveness proposal will be, whether it’ll become a reality, what the requirements will be, and how effective the program will be.
So, ensure that you have the right plan to tackle your student loan debt – this is the most effective way!
Biden’s Social Security and Retirement Accounts Plans
Any new president will certainly have policies to change Social Security, and the President-Elect isn’t any different. He’s also proposing a few tweaks to 401(K) plans.
Biden’s Proposals – What We Know
Social Security is in peril. The trust funds supporting the program are expected to dry out within the next 15 years. In such a scenario, beneficiaries would only be entitled to 80% of what they’re owed. Biden seeks to fix this and include a few extras too:
Minimum benefit: The average monthly benefit is about $1,400; however, not everyone gets that much. A lot of people receive much less. According to Biden’s proposal, Social Security beneficiaries who’ve worked for a minimum of 30 years will receive a minimum annual benefit of 125% of the poverty level—relatively $15,950 for a single individual.
Increased benefit for older beneficiaries: He also wants to increase beneficiaries’ benefits once they’ve gotten Social Security for at least 20 years. This is aimed at ensuring that long-time retirees can retain more of their savings. He didn’t mention the amount of this increment.
Allow surviving spouses to reap more benefits: Social Security benefits are split into half for couples receiving the benefits when a spouse becomes deceased. Biden’s proposal would let the surviving spouse retain a significant proportion of the benefits, ultimately raising their benefits by 20%.
Of course, all these have to be paid for with taxes! Biden would impose a Social Security payroll tax of 12.4% on earned incomes over $400,000, divided between the employer and employee. Currently, there’s no payroll tax for incomes over $137,700, and for now, individuals earning between $137,700 and $400,000 aren’t taxed.
The Facts
Just remember: Never allow an administrative change in the White House to push you to make a significant mistake with your retirement savings plan. Don’t rely on Social Security for your retirement. Plan and invest like it doesn’t exist because it might not. Additionally, you can fair better building wealth via your tax-advantaged retirement savings plans than any government ever could. And speaking of retirement plans, the President-Elect has a few changes for those as well, including proposing a flat tax credit for contributions to a 401(k) instead of the current tax deduction.