What Does Biden's Tax Plan Mean For the Middle Class?
As I mentioned a couple of weeks ago, President Biden introduced the American Families Plan (AFP) which is intended to be an investment in the economic future of our country and to help provide more help to families.
It was very clear during his campaign that Mr. Biden wanted to provide more benefits to the middle class. Raising taxes on the wealthier tax payers to provide more benefits, services, and tax breaks to those earning a bit less.
Here are a few key benefits for those earning a bit less:
1. Retirement Account Contributions
Today, when one contributes to their retirement plan at work or their own personal deductible IRA, they receive a deduction based on their tax bracket.
The new rule will be a flat 26% credit for these contributions so if one is a lower income earner. (i.e. in the 10%,12%, 22%, or 24% tax bracket), by contributing to these plans, they would now be at the 26% level.
2. First Time Homebuyer
Currently, there is no first time homebuyer credit. Biden's plan would receive a credit of up to $15,000.
This could be a great incentive for those that haven't owned a home in the last three years as they would now be eligible for the credit.
Between this credit and the current rule that allows first time buyers to take up to $10,000 penalty free from their IRA, they might be able to get into their first home.
3. Tax Credits for Parents
Under current law, those with one child receive $3,000 in tax credits ($6,000 for two or more kids) to $8,000 for one kid and $16,000 for two or more children.
This credit does get reduced for those with higher incomes. If one's Adjustable Gross Income is over 440k, there is no credit.
4. Expanded Earned Income Tax Credit
This new proposed change would expand to include workers over 65 and those without children as well. The one caveat is, the tax payer must be working to claim the credit.
Time will tell how this all plays out.
Have more questions or wondering if you should be making any changes ahead of potential tax law change? Just shoot me an email or give me a call.
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In good health.
All the best.
Rick Fingerman, CFP®
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