Biden’s Tax Plan May Lead to a “Marriage Penalty” for Top Earners
Tax Hikes for Wealthy Americans
President Joe Biden’s tax proposal, which would raise taxes on the top 1% of wealthiest Americans, could lead to what’s referred to as a “marriage penalty.” A marriage penalty occurs when a couple pays more in taxes when they file together than if they were to file individually.
Under the proposal, single filers with more than $452,700 in income and couples filing jointly earning more than $509,300 would face a tax increase. The highest tax rate would be raised to 39.6% from 37%.
The White House said the change will only impact the top earners in the country. But a small percentage of married individuals earning less than $400,000 each could still feel the impact under some specific circumstances. For example, if each half of a couple makes $260,000 annually, they may pay higher taxes filing jointly than if they filed individually.
Less Than 1% of Households at Risk
If the tax proposal is approved, the marriage penalty would apply to less than 1% of US households. But for those impacted, there are some steps to take which can help avoid a tax surprise next year.
Financial planners say married couples may consider saving more in tax-deferred accounts like a 401(k) or IRA. Making charitable donations and other deductions may also reduce the impact.
It is also important to pay attention to the timing of the tax law. If it goes into effect in 2022, self-employed individuals may want to consider recognizing a portion of their 2022 income at the end of 2021. It is always best to consult a tax professional for your own unique situation.
The Plan Is Not Finalized
The prospect of higher taxes is causing some individuals to make financial changes now, but it could take time for Biden’s proposal to become a law. Details may also change before it passes, so others are waiting to make significant changes.
President Biden is proposing several changes to the tax code which would impact the wealthiest Americans to help fund the infrastructure proposal and other initiatives. It’s worth noting that none of the details of these changes are yet set in stone.
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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.