Numbers to watch: The House Tax Proposal

Dear Client,

You may have heard about proposed tax changes last week in the U.S. House Ways and Means Committee. There’s a long way to go before these ideas become law, but we wanted to highlight the areas that would affect most clients.

The 100,000-foot view of the legislation is this: More spending is desired, and greater taxation of high earners and larger estates is the way to pay for it.

Income Tax Brackets and Capital Gains Tax:ⁱ
No changes for joint filers under $418,850 taxable income and single filers under $209,425.

A top tax bracket of 39.6% is proposed for single filers making $400,001 and joint filers over $450,001. At those same higher income levels, a proposed 25% capital gains rate applies. Everyone else would pay 15% or 0, depending on income. The 20% cap gains bracket would be eliminated.

While the income tax brackets would become effective Jan. 1, 2022, the capital gains change would be effective the date the legislation was filed (Sept. 13, 2021).

Estate / GST Taxⁱⁱ
The estate and transfer tax exemption (the amount your heirs don’t have to pay tax on) currently is set to lower at the end of 2025. The Ways and Means plan accelerates that to the end of this year and cuts the current exemption by 50%. The proposed exempted amount is $6,020,000 per person, and twice that for married couples.

Kid Credits^iiiiv
The bill extends the current Expanded Child Tax Credit monthly payments to individuals with children 17 and younger through 2025. The full benefit starts to phase out at $150,000 income for married couples filing jointly, and at $112,500 for single filers.

The proposed legislation also expands credits for child care. Families earning up to $125,000 would receive a tax credit of half of their child care expenses for kids younger than 13, up to $4,000 for one child and $8,000 for two or more.  This credit also applies to those caring for a disabled loved one.

If you have children and hover near these income thresholds, you may be able to manage your income to receive the maximum credits.

In conclusion

It’s important to remember this bill is not law, and changes are likely. As always, we’ll be closely monitoring provisions that may affect you.

We encourage you to visit with your team of professionals (financial planner, estate attorney, and CPA) if you have not updated your financial and estate plan in a while.

Sincerely,

John R. Berry