Understanding President-Elect Biden’s Tax Plan

Joe Biden’s tax plan will inevitably go through some changes in its path through the legislative process until it actually takes effect. Still, we can get a sense of Biden's priorities by imagining what the tax plan would look like according to the tax policy proposals the Biden-Harris campaign has released.  

Biden’s tax plan affects individuals and businesses. Learn more about the key components of his tax plan and how it could possibly affect you. 

Prepare to Adapt

Running a business is all about adaptability. Business conditions and government regulations change all the time. You have to be ready to make adjustments and take advantage of new opportunities if you want your business to thrive. Every organization needs to be able to adapt to change, especially in times like these. 

At this point, there are still a lot of unknowns. Any new tax policy proposal is liable to go through extensive modifications if it's going to be approved and passed into law. You can prepare and give your business a boost by staying on top of new developments and working with an accountant who understands the changing environment.  

Business Tax Adjustments

The bulk of Biden's tax plan is in the changes it would make to businesses' tax rates. This means new initiative and rate hikes which would result in big corporations paying more and numerous new tax credits to small businesses.

New Taxes on Big Business

Biden would increase the corporate income rate from 21 to 28 percent, and will also add other tax measures aimed at big businesses. Biden has stated that his goal is to make tax avoidance more difficult for large companies like Amazon. 

Corporate Alternative Minimum Tax

One of this plan's biggest innovations would be a minimum tax rate imposed on corporations with book profits of $100 million or higher. Corporations of that size will be required to pay whichever tax rate is higher: their regular corporate income tax or the 15 percent minimum tax. 

The minimum tax on book profits would still allow for net operating loss and foreign tax credits. Still, it would force many large corporations to pay taxes on their profits without the benefit of many other credits and tax deductions.

GILTI Tax Rate

Biden plans to follow up on the Tax Cuts and Jobs Act's introduction of a tax on global intangible low tax income (GILT). This tax targets U.S. firms' foreign subsidiaries, discouraging outsourcing, and increasing tax returns from U.S. multinational corporations. 

The Biden plan would propose to double the effective tax rate on GILTI from U.S. firms from 10.5 to 21 percent. It would also seek to eliminate GILTI's exemption for deemed returns under 10 percent of qualified business asset investment (QBAI). 

Biden's plan would also begin assessing GILTI on a country-by-country basis. This means that a corporation would pay more for their profits in a country with low tax rates and less in a country with higher tax rates than calculating an average rate between the countries. 

New or Expanded Business Tax Credits

There would also be several tax credits for businesses to support market stability and incentivize particular business practices and industries. 

The new Manufacturing Communities Tax Credit would protect businesses that experience large-scale layoffs of their workforce. This would specifically target communities that have been hit hard by job losses in manufacturing. 

Biden's platform also proposes expanding the New Markets Tax Credit, which gives business owners incentives to develop in low-income communities. The plan would also make the tax credit permanent and not subject to regular renewal.      

The plan would incentivize workplace retirement savings plans with tax credits for small businesses and encourage even small business employees to save for the future.

Finally, the Biden tax plan would target the energy sector and support renewable energy in several different ways:

• Ending tax subsidies for fossil fuels
• Expanding tax credits for carbon capture, use, and storage
• Expanding credits for residential energy efficiency
• Restoring the Energy Investment Tax Credit
• Restoring the Electric Vehicle Tax Credit 

Changes to the Tax Cuts and Jobs Act

Biden's tax proposals include amendments to the 2017 Tax Cuts and Jobs Act (TCJA) which reduced rates for high-income earners and corporations by implementing a flat 21% corporate tax rate and lowering the top individual tax rate. 

A big emphasis of a Biden plan would be to repeal the components of the TCJA for high-income filers. One aspect of this would be a drop in the estate tax exemption by 50 percent to bring it back to its previous level. 

A Biden tax plan would also see the top individual federal income tax rate rise from 37 percent to the pre-Trump rate of 39.6 percent. 

Corporate Rate Increases

Beyond the roll-back of the TCJA, the Biden plan would also mean an increase in taxes for big businesses and those individuals or families earning more than $400,000 a year. The plan includes a 12.4 percent Social Security payroll tax for wages over $400k. 

Biden's plan would increase the corporate income tax rate from 21 percent to 28 percent and impose a corporate minimum tax on book income. This means that large businesses like Amazon and FedEx would be required to pay a tax based on the profit or loss that they report to shareholders. 

While the TCJA introduced a tax on GILTI or global intangible low tax income, Biden's proposal would double the tax rate and allow it to vary from country to country.  

Tax Relief Measures

Biden's platform proposal includes an increase in the maximum Child and Dependent Tax Credit from $3,000 to $8,000, or $16,000 for families with more than one dependent. 

The plan would also offer tax relief for student debt forgiveness, and the first-time homebuyers credit would be restored.   

Other Potential Proposals

Biden's Tax Plan is extensive and ambitious. It includes many different proposals, but some are less detailed than others, and it's hard to tell exactly what it would look like at this stage. Here are some of the other proposals we still need more information on:

• Eliminating certain real estate industry tax provisions.
• Expanding the Affordable Care Act's premium tax credit.
• Creating a refundable renter's tax credit capped at $5 billion per year, aimed at holding rent and utility payments at 30 percent of monthly income.
• Increasing the generosity of the Low-Income Housing Tax Credit.

Offshoring Surtax

The incoming administration's plan, if passed as is, would seek to impose a new 10 percent surtax on corporations that move service and manufacturing jobs to other countries, only to then ship and sell products back in the U.S. 

This surtax would raise the effective corporate tax rate on this activity to 30.8 percent.

Made in America Tax Credit 

Biden's plan would further seek to support U.S. industries and jobs by establishing an advanceable 10 percent Made in America Tax Credit for activities that restore production, revitalize existing closed or closing facilities, retool facilities to advance manufacturing employment, or expand manufacturing payroll. 

Balancing Retirement Accounts

A Biden tax plan would also seek to equalize traditional retirement plans' tax benefits like 401(k)s and individual retirement accounts. Instead of the traditional benefit of deductibility, the new tax plan would provide a refundable tax credit. 

Work with the Professionals

Whether you have questions about Biden’s proposed tax plan or need other support for your small business, don’t hesitate to seek out the professionals. At 1-800Accountant, we provide hands-on guidance and support from professional accountants and can help you with your unique situation. Working with an accountant can save you time and money in the long-run, not to mention you’ll stress less when tax season rolls around.

Joe Biden’s tax plan will inevitably go through various changes in its path through the legislative process until it actually takes effect. Still, we can get a sense of Biden's priorities by imagining what the tax plan would look like according to the tax policy proposals the Biden-Harris campaign has released.  

Biden’s tax plan affects individuals and businesses. Learn more about the key components of his tax plan and how it could possibly affect you. 

Prepare to Adapt

Running a business is all about adaptability. Business conditions and government regulations change all the time. You have to be ready to make adjustments and take advantage of new opportunities if you want your business to thrive. Every organization needs to be able to adapt to change, especially in times like these. 

At this point, there are still a lot of unknowns. Any new tax policy proposal is liable to go through extensive modifications if it's going to be approved and passed into law. You can prepare and give your business a boost by staying on top of new developments and working with an accountant who understands the changing environment.  

Business Tax Adjustments

The bulk of Biden's tax plan is in the changes it would make to businesses' tax rates. This means new initiative and rate hikes which would result in big corporations paying more and numerous new tax credits to small businesses.

New Taxes on Big Business

Biden would increase the corporate income rate from 21 to 28 percent, and will also add other tax measures aimed at big businesses. Biden has stated that his goal is to make tax avoidance more difficult for large companies like Amazon. 

Corporate Alternative Minimum Tax

One of this plan's biggest innovations would be a minimum tax rate imposed on corporations with book profits of $100 million or higher. Corporations of that size will be required to pay whichever tax rate is higher: their regular corporate income tax or the 15 percent minimum tax. 

The minimum tax on book profits would still allow for net operating loss and foreign tax credits. Still, it would force many large corporations to pay taxes on their profits without the benefit of many other credits and tax deductions.

GILTI Tax Rate

Biden plans to follow up on the Tax Cuts and Jobs Act's introduction of a tax on global intangible low tax income (GILT). This tax targets U.S. firms' foreign subsidiaries, discouraging outsourcing, and increasing tax returns from U.S. multinational corporations. 

The Biden plan would propose to double the effective tax rate on GILTI from U.S. firms from 10.5 to 21 percent. It would also seek to eliminate GILTI's exemption for deemed returns under 10 percent of qualified business asset investment (QBAI). 

Biden's plan would also begin assessing GILTI on a country-by-country basis. This means that a corporation would pay more for their profits in a country with low tax rates and less in a country with higher tax rates than calculating an average rate between the countries. 

New or Expanded Business Tax Credits

There would also be several tax credits for businesses to support market stability and incentivize particular business practices and industries. 

The new Manufacturing Communities Tax Credit would protect businesses that experience large-scale layoffs of their workforce. This would specifically target communities that have been hit hard by job losses in manufacturing. 

Biden's platform also proposes expanding the New Markets Tax Credit, which gives business owners incentives to develop in low-income communities. The plan would also make the tax credit permanent and not subject to regular renewal.      

The plan would incentivize workplace retirement savings plans with tax credits for small businesses and encourage even small business employees to save for the future.

Finally, the Biden tax plan would target the energy sector and support renewable energy in several different ways:

• Ending tax subsidies for fossil fuels
• Expanding tax credits for carbon capture, use, and storage
• Expanding credits for residential energy efficiency
• Restoring the Energy Investment Tax Credit

Restoring the Electric Vehicle Tax Credit 

Changes to the Tax Cuts and Jobs Act

Biden's tax proposals include amendments to the 2017 Tax Cuts and Jobs Act (TCJA) which reduced rates for high-income earners and corporations by implementing a flat 21% corporate tax rate and lowering the top individual tax rate. 

A big emphasis of a Biden plan would be to repeal the components of the TCJA for high-income filers. One aspect of this would be a drop in the estate tax exemption by 50 percent to bring it back to its previous level. 

A Biden tax plan would also see the top individual federal income tax rate rise from 37 percent to the pre-Trump rate of 39.6 percent. 

Corporate Rate Increases

Beyond the roll-back of the TCJA, the Biden plan would also mean an increase in taxes for big businesses and those individuals or families earning more than $400,000 a year. The plan includes a 12.4 percent Social Security payroll tax for wages over $400k. 

Biden's plan would increase the corporate income tax rate from 21 percent to 28 percent and impose a corporate minimum tax on book income. This means that large businesses like Amazon and FedEx would be required to pay a tax based on the profit or loss that they report to shareholders. 

While the TCJA introduced a tax on GILTI or global intangible low tax income, Biden's proposal would double the tax rate and allow it to vary from country to country.  

Tax Relief Measures

Biden's platform proposal includes an increase in the maximum Child and Dependent Tax Credit from $3,000 to $8,000, or $16,000 for families with more than one dependent. 

The plan would also offer tax relief for student debt forgiveness, and the first-time homebuyers credit would be restored.   

Other Potential Proposals

Biden's Tax Plan is extensive and ambitious. It includes many different proposals, but some are less detailed than others, and it's hard to tell exactly what it would look like at this stage. Here are some of the other proposals we still need more information on:

• Eliminating certain real estate industry tax provisions.
• Expanding the Affordable Care Act's premium tax credit.
• Creating a refundable renter's tax credit capped at $5 billion per year, aimed at holding rent and utility payments at 30 percent of monthly income.
• Increasing the generosity of the Low-Income Housing Tax Credit.

Offshoring Surtax

The incoming administration's plan, if passed as is, would seek to impose a new 10 percent surtax on corporations that move service and manufacturing jobs to other countries, only to then ship and sell products back in the U.S. 

This surtax would raise the effective corporate tax rate on this activity to 30.8 percent.

Made in America Tax Credit 

Biden's plan would further seek to support U.S. industries and jobs by establishing an advanceable 10 percent Made in America Tax Credit for activities that restore production, revitalize existing closed or closing facilities, retool facilities to advance manufacturing employment, or expand manufacturing payroll. 

Balancing Retirement Accounts

A Biden tax plan would also seek to equalize traditional retirement plans' tax benefits like 401(k)s and individual retirement accounts. Instead of the traditional benefit of deductibility, the new tax plan would provide a refundable tax credit. 

Work with the Professionals

Whether you have questions about Biden’s proposed tax plan or need other support for your small business, don’t hesitate to seek out the professionals. At 1-800Accountant, we provide hands-on guidance and support from professional accountants and can help you with your unique situation.

Working with an accountant can save you time and money in the long-run, and we can help you weather the ups and downs of tax law updates.