President Biden’s proposed budget includes notable tax provisions for individuals
The federal government’s planned budget for the fiscal year 2024 has been made public by President Biden. The budget intends to reduce the deficit by about $3 trillion over ten years. However, several provisions in the budget will impact how much money people will owe in taxes. However, with a Republican majority in the U.S. House of Representatives, most of these plans have little chance of being implemented. Still, they do reveal the Democrats’ top goals as they get ready for the 2024 election cycle. Tax provisions in the proposed budget would impact individual taxpayers with different income levels. It would specifically change the following things.
Individual tax provisions to note
- Tax rates: The proposal would reinstate the top individual tax rate of 39.6% for single filers earning more than $400,000. It would be $450,000 for married couples.
- Net investment income tax (NIIT): The NIIT on income over $400,000 would include all pass-through business income not otherwise covered by the NIIT or self-employment taxes. The budget would also increase the additional Medicare tax rate and the NIIT rate by 1.2 percentage points. Thus, the Medicare tax rate would be 5% for earnings above $400,000. Meanwhile, the NIIT rate would be 5% for investment income above $400,000.
- Capital gains tax: The highest capital gains rate now is 20% (or 23.8% if the NIIT applies). For individuals with taxable income of more than $1 million, the budget proposes that the taxation of capital gains be at ordinary rates. 37% (or 40.8% with the NIIT) is generally the highest rate. However, it would be 39.6% (or 43.4% with the NIIT) if the top tax rate is raised.
- Cryptocurrency taxation: The proposal would amend the “wash-sale” rule to cover digital assets. The rule prohibits deducting a loss when the taxpayer acquires “substantially identical” investments within 30 days before or after the sale date.
- Minimum wealth tax: The proposal would impose a minimum 25% tax on total income, generally inclusive of unrealized capital gains, for all taxpayers whose assets exceed liabilities by more than $100 million. According to the White House, the tax would apply to only the top 0.01% of taxpayers.
Tax provisions impacting families
- Child tax credit (CTC): This proposal would expand the CTC and make it fully refundable and payable in advance every month. For eligible parents, the credit would increase from $2,000 to $3,000 for children ages six and older. For children under age six, the credit increases to $3,600. The proposal would also establish a “presumptive eligibility” for determining when a taxpayer can claim a monthly specified child allowance or receive a monthly advance child payment. After a taxpayer establishes presumptive eligibility for a child, that child would be treated as a set child of the taxpayer for each month during the period of the taxpayer’s presumptive eligibility.
- Premium tax credits (PTCs): The American Rescue Plan Act expands eligibility for healthcare insurance subsidies to taxpayers with household incomes above 400% of the federal poverty line for 2021 and 2022. It also reduces the applicable contribution percentage. The percentage is from household income that a taxpayer must contribute toward a healthcare insurance premium. In addition, the Inflation Reduction Act (IRA) extended the expansion through 2025. The proposed budget would make this expansion permanent.
- Gift and estate taxes: The proposal would close loopholes related to specific trust arrangements. Specifically, the changes would affect grantor-retained annuity trusts and charitable lead annuity trusts.
More on the proposed budget to come
The budget proposal only addresses a few of the temporary tax provisions of the TCJA that have expired or will expire in the next few years. The increased standard deduction and reduced individual tax rates are among the numerous provisions to expire at the end of 2025. This potentially affects the tax liability of a wide swath of taxpayers. We’ll keep you informed if there’s significant movement on this front. Additionally, keep an eye out for the business tax provisions included in President Biden’s proposed budget. Contact our RRBB accountants and advisors if you have any questions in the meantime.
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