- President Biden signed a $1.9 trillion relief package into law on March 11, 2021.
- The package addresses COVID-19, stimulus relief, and other administration priorities.
- The package does not include major tax increases for individuals, though significant change may be on the horizon for higher-earning individuals and families.
The better you understand your finances, the harder they will work for you.
President Biden signed the American Rescue Plan of 2021 (Rescue Plan) into law on March 11, 2021. The $1.9 trillion package encompasses a majority of the proposals outlined by the President earlier in the year to address COVID-19, stimulus relief, and other administration priorities.
Many taxpayers will soon receive a third round of stimulus checks up to $1,400 per person (with some tweaks to eligibility rules and income limitations). The Rescue Plan also contains other tax-related provisions affecting families, including the expanded child tax credit up to $3,000 for a child under 18 ($3,600 if the child is under six); exclusions from gross income for forgiven student loans and up to $10,200 of unemployment compensation; and enhancements to the dependent care and earned income tax credits.
As expected, major tax increases for individuals were not included, but are likely still to come.
Anticipated recovery package may trigger tax changes
Although tax hikes are not included on the Biden-Harris administration’s list of immediate priorities, they are not off the radar. To the contrary, some tax increases will likely provide the revenue needed to offset costs for the “Recovery” package (the second part of the President’s two-part plan) expected later this year. If the administration and Democratic-controlled Congress are unable to obtain Republican support in the Senate, they may utilize the budget reconciliation process for a second time. The Recovery package, which is expected to address his campaign proposal to “build a modern, sustainable infrastructure and an equitable clean energy future” and other administration priorities, may have a significant revenue effect. To the extent the costs increase the budget beyond ten years, the “Byrd rule” in the Senate will require offsets.
No specific details have been released yet, however the administration has consistently expressed an interest in considering higher capital gains tax rates and changes to the taxation of carried interests and investment income, particularly for higher-earning individuals.
The repeal of the “stepped up basis” for transfers at death has also been raised and is of particular concern for individuals and families (such as, small business owners) with accumulated wealth.
Advisors are also closely following Senate Finance Committee Chairman Ron Wyden’s “Treat Wealth Like Wages” proposal unveiled during the last session of Congress. In addition to taxing dividends and capital gains at ordinary income tax rates, it would require certain taxpayers (those that exceed a $1 million income or $10 million asset threshold for three years) to pay income taxes on an annual basis on net unrealized gains. Such acceleration of income taxes is a vast departure from the current taxation of appreciation upon the sale of an asset, and could trigger major cash flow issues.
Given the likelihood of significant tax changes in the 117th Session of Congress and the increased interrelatedness of income taxes with estate and gift taxes (as well as liquidity, asset protection and other financial issues), now is a good time to consider a long-term family wealth plan.
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CLA can help you assess where you are today, determine where you want to go, and create a path that supports your personal goals.