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Democrats have scrapped a number of proposals to raise taxes for the rich as part of their $ 1.75 trillion social and climate spending measure. But these taxes will increase, even if the legislators do not touch them.
Beginning in 2026, the marginal income tax rate paid by the highest paid individuals will rise (to 39.6% from 37%), more multimillion-dollar estates will be subject to federal tax, and many entrepreneurs will lose 20% of their business tax deductions. income.
This is due to the wording of the 2017 tax law passed by Congress and the Republican-controlled White House, which made this tax cut temporary.
“Most of the individual provisions [law] really expires at the end of 2025, said Garrett Watson, senior tax analyst. [many households] saw tax cuts in 2018, they may see tax increases over current policies in 2026. ”
In September, the House of Democrats proposed repealing changes in the maximum income tax rate, inheritance tax and tax deductions for wealthy transit business owners.
The measures, part of a social and climate package that were then expected to cost up to $ 3.5 trillion, aimed to raise cash from households earning more than $ 400,000 a year and to make the tax code more fair.
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However, the updated and simplified structure released Thursday by the White House does not require these tax measures. The framework was the result of months of negotiations between President Joe Biden and progressive and moderate Democrats.
Senator Kirsten Cinema, Arizona, rejected many of the rate hikes passed by the House Ways and Means Committee last month, prompting party officials to fight for other ways to pay for the plan. Republicans also did not want to repeal the provisions of their 2017 tax laws.
Tax measures are subject to change during ongoing negotiations. Legislators can also extend existing tax provisions before their expiration or make them permanent.
Prior to the 2017 tax law, the marginal income tax rate on the highest income was 39.6%. (Individuals paid rate on income over $ 426,700 and married couples on income over $ 480,050, according to the Tax Policy Center.)
The law lowered the maximum rate to 37%. (In 2021, it applies to single tax payers with income over $ 523,600 and married couples with income over $ 628,300.)
The maximum rate is planned to drop to 39.6% in 2026 (however, the income threshold will be higher than under the previous law to take into account inflation over a decade).
The 2017 tax law reduced the number of estates subject to inheritance tax, which is a levy on transfer of property in the event of death.
Estates must pay 40% federal tax if the value exceeds a certain amount. Tax legislation has approximately doubled the threshold, which It was $ 5.49 million per person in 2017.
(The amount, which changes each year for inflation, will be $ 11.7 million per person in 2021 and $ 23.4 million for married couples.)
The proportion of estates that pay the tax (about 0.2% per year) is at the lowest level on record since 1934.
The threshold will drop to about $ 6 million in 2026 after adjusting for inflation, Watson said.
The 2017 tax law allowed entrepreneurs who structure their business as a cross-cutting (such as a partnership or sole proprietorship) to deduct up to 20% of their business income from taxes. (These entrepreneurs pay taxes on business income at individual tax rates.)
This measure was supposed to offer rough parity with the tax cuts for corporations; the law lowered the tax rate from 35% to 21%.
The rules are complex and does not apply to all types of end-to-end channels. Business owners will lose tax breaks in 2026.
The House Ways and Means Committee has proposed limiting tax breaks for business owners with incomes of less than $ 400,000 (or $ 500,000 for married couples).