COVID-19 has impacted the lives of millions of American citizens and has left them weaker economically. In light of this unprecedented damage, the American government has initiated multiple relief measures.
On April 28, 2021, President Biden presented the American Families Plan before Congress. The AFP, which is the second part of the Build Back Better program, aims to further improve the relief and economic growth.
President Biden wants to boost the American economy by pumping in $1.8 trillion in development programs through AFP. The focus areas would be developing infrastructure, health care, education, child care, and programs for middle and low-income groups.
Several tax hikes for high-income individuals and organizations are also in the offing to fund this plan.
In this article, we endeavor to highlight the key proposals in the American Families Plan, its benefits, and the tax implications.
Key Elements of the American Families Plan:
The AFP funds programs for the betterment of children and families. Its goal is to grow the middle class and extend the benefits of economic growth to all Americans.
Let us look at the AFP in two parts:
1. Proposed Tax Changes:
- The top tax rate for individuals is to increase to 39.6% from 37% for incomes above $400,000.
- Capital gains top tax rate equates to 39.6% for taxpayers with gains over $1 million from investments.
- Elimination of the step-up basis for gains over $1 million.
- Potential removal of the special real estate tax break currently allowing real estate investors to defer taxation when they exchange property. This will be applied to gains greater than $500,000.
- Increase W-2 FICA taxes (Medicare tax) for high-income workers making over $400k and eliminate loopholes.
2. Programs and Credits for Families and Children:
- Extend expanded ACA premium tax credits in the American Rescue Plan.
- Extend the Child Tax Credit increases in the American Rescue Plan through 2025 and make the Child Tax Credit permanently fully refundable.
- National comprehensive paid family and medical leave program.
- Permanently increase tax credits to support families with child care needs.
- Make the Earned Income Tax Credit Expansion for childless workers permanent.
- Universal pre-kindergarten for 3-4 year olds to bridge the achievement gap.
- Two years of tuition-free community college for students and workers who want to re-skill in order to help them get a degree or certification.
- Two years of subsidized tuition for study in certain fields.
- Develop college retention and completion grants to benefit low-income students.
President Biden placed the American Families Plan for consideration by the Joint session of Congress on April 28, 2021. Though Congress is yet to vote and sign it into law, it is crucial to understand the proposals in this plan.
The American Families Plan could offer significant financial benefits for your family. On the flip side, it could increase your taxes related to income from investments.
To understand the provisions of the plan, you need a financial advisor. FinAccurate has financial experts who can help you understand the implications of these changes, your qualification, and devise an appropriate tax strategy.
If you have any questions about the American Families Plan, book an appointment to talk with our experts today.
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