Major Tax Changes under President Biden’s American Families Plan Proposal
The American Families Plan (AFP) proposal would use $1.8 trillion in new spending on education and family programs. About $661 billion in additional taxes on higher income individuals and businesses like Partnerships, Sole Proprietorships, and S Corporations.
Our current tax system would change and become more progressive than under current law, with higher marginal tax rates on high earners as well as expanding refundable tax credits for lower income taxpayers.
Top Marginal Tax Rate would increase from 37% to 39.6%. This would apply to income over $452,700 for Single and Head of Household filers and $509,300 for Joint filers.
Long Term Capital Gains and Qualified Dividends would be taxed as Ordinary Income for taxable income over $1 million. This would result in a top marginal rate of 43.4% including the 3.8% Net Investment Income Tax (NIIT).
The 3.8% NIIT tax would be applied to active pass-through business income over $400,000.
The proposals would limit 1031 Like Kind Exchanges over $500,000 in deferred capital gains, ending the preferred treatment of carried over interest and make permanent the 2017 tax law’s limitation on excess losses that applies to non-corporate income.
Unrealized Gains at death over $1 million would be taxed ($2 million for joint filers, plus current law capital gains exclusion of $250,000/$500,000 for primary residences).
The enhanced Child Tax Credit (CTC) in the American Rescue Act (ARPA) would be extended through 2025, which provides $3600 for children under age 6 and $3000 for children age 6 to 17. This would phase out at a rate of 5% beginning at $112,500 for Head of Household and $150,000 for Joint filers.
The changes in the ARPA that expanded the Earned Income Tax Credit as well as the Child and Dependent Care Tax Credit would become permanent.