With his $1.9 trillion relief bill successfully passed, President Joe Biden is reportedly working on an even bigger spending bill next.
And this new bill may come with the first federal tax hike in nearly three decades as the new package is expected to include a corporate tax hike and a raise in the income tax rate for high-earners.
So while you may be wondering whether you’ll get another stimulus check to help with your bills or pay down debt, you may soon be seeing some significant changes to tax law, which will leave some with higher rates and others with more benefits.
While no package has been put together yet, these are the tax changes being mulled over by the current adminastration:
What are Biden’s plans and who will it impact most?
Earlier this month, White House press secretary Jen Psaki told reporters that while “there isn’t a package yet”, Biden’s next proposal will aim to fulfill components of his “Build Back Better” agenda from the 2020 presidential campaign trail.
And keeping in mind his promises last year, Psaki added the tax increase will only impact those households making $400,000 or more.
Sources told Bloomberg that in addition to raising the corporate and high-earner tax rates, Biden’s team is currently considering an increase in the capital-gains tax rate for those who earn more than $1 million a year.
Also under consideration is expanding the estate tax and “paring back” tax preferences for pass-through businesses, which are not currently subject to corporate taxes.
If Biden manages to fit in all of his promises from the campaign trail, they would collectively increase federal revenues by $2.1 trillion over the next decade, according to analysis from the Tax Policy Center.
Many of the changes being mulled over by Biden and his administration would reverse some tax changes made in President Donald Trump’s 2017 Tax Cuts and Jobs Act. Because of that, Biden is likely to receive pushback from both Republicans and the more moderate members of his party.
Well, I don’t make $400K. What about me?
Psaki recently clarified that the $400K threshold will be for households, not individuals. So if you’re making $200K and your partner brings in the same amount or more, you could be in for a tax hike in the near future.
For families that fall within that income bracket, Biden’s plans include raising their top tax rate to 39.6% from its current 37%. And it will also see their itemized deductions capped at 28%.
On the bright side, there’s a possibility that Biden could add more tax cuts for lower-income families, like he did in the relief bill with the expanded Child Tax Credit.
The maximum Child and Dependent Tax Credit could rise from $3,000 to $8,000, capped at $16,000 for more than one dependent. That means parents may soon expect to receive even more money for their kids, whether they need it for immediate household expenses or educational purposes.
This extra cash infusion could free up some parents to use the funds to get something like a safe and secure kid-friendly debit card, or an easy to manage investing app, to help teach children important lessons about managing money.
It’s not just families who’ll benefit
Biden has plans for relief for lower-income households in general, not just families.
If you’re still working on paying down your student loans decades after leaving school, proposals for student loan debt forgiveness, could grant borrowers like you more generous forgiveness and payment-deferral rules.
The most-recent relief bill saw a tax benefit where loans would be forgiven without imposing any tax liability.
Affordable health insurance access would also be expanded, offering refundable tax credits on healthcare insurance premiums to limit families’ spending on premiums to no more than 8.5% of their income.
And finally, Biden wants to reinstate the first-time homebuyer tax credit, which provides first-time buyers with a maximum of $15,000 as a refundable and advanceable credit when they purchase their home — meaning you wouldn’t have to wait until you file your taxes the following year to get it.
What about state taxes?
Treasury Secretary Janet Yellen recently spoke out to reassure Americans worried their taxes would suddenly go up. Any tax hikes will “probably phase in slowly over time,” she told CNBC.
But that doesn’t necessarily mean you won’t see some tax increases this year. Twenty-six states and the District of Columbia have passed notable tax changes that took effect Jan. 1, according to the Tax Foundation.
What to do if you need extra money for taxes owing
If you’re worried about how a bigger tax bill may impact your budget, there are a few things you can do to free up some funds right now.
-
Cut the cost of your debt. Has your credit card been carrying you through the pandemic? If so, the interest is probably starting to weigh you down. You can make it more manageable by folding your balances into a single debt consolidation loan at a lower interest rate.
-
Shrink your insurance bills. If you’re not driving as much because of the pandemic, your car insurance company may be willing to give you a discount on your rate. But it might be time to shop around for a better deal. And while you’re at it, you also might save hundreds on your homeowners insurance by comparing rates to find a lower price.
-
Trim your spending or consider a side-hustle. Have a hobby or specialized skill? Turn it into a side hustle to bring in extra income. If you received some stimulus money and you need it to purchase household good or other necessities, you can download a free browser extension that will automatically scour the web for better prices and coupons whenever you shop online.
