President Biden proposed a new tax plan that will help fund the American Families Plan. Check how your income tax will change, and whether you can expect additional tax refunds!
Your age
Annual income (AGI)
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Filing status
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Children below 6 years of age
Children between 6 and 17
Number of dependents
Income tax
Your income tax under the current tax plan
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Your income tax paid under Biden's tax plan
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Effective tax rate
Effective tax rate under the current tax plan
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Effective tax rate under Biden's tax plan
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Biden's Tax Plan Calculator

By Wei Bin Loo and Maciej Kowalski, PhD candidate
Last updated: Jun 08, 2021

On Friday (May 28), Biden recently proposed to raise the top income tax rate for wealthy households (annual income more than $400,000) from 37% to 39.6%. As part of the President's Build Back Better Program, the President intends to fund his stimulus programs by changing the tax law. The Biden administration believes that it will benefit the nation by redistributing wealth more evenly through enacting new tax law.

During this pandemic period, we have had many legislation changes. We understand that these changes can be confusing at times. Hence, we have prepared this article to outline the potential changes of the new tax law. We also built a calculator to help you understand how your hard-earned income will be taxed under Biden's tax law. Furthermore, we will also introduce some of the tax credits you might be eligible for.

What is Biden's Tax Plan about?

To get the nation back on its feet, there is a strong need for President Biden to push through multiple stimulus packages and infrastructure plans. The President has been focusing on pumping fiscal spending to increase the aggregate demand of the economy.

The new tax law will focus on raising the tax of the rich and also corporates. The extra money collected will be used to find programs such as:

  • American Rescue Plan, which increases the child tax credit and the earned income tax credit (EITC);
  • American Jobs Plan, which is a $2.3 trillion infrastructure improvement plan; and
  • American Families Plan, which focuses on helping minorities to access education.

It is, however, important to note that many of the changes outlined below are still yet to be officially enacted by Congress. The tax plan is thus subjected to potential changes. Some propositions might even be eliminated. Congress needs to act on this bill before the fiscal year ends on September 30.

Anyways, without further ado, let's talk about how you can use our calculator to understand the tax you need to pay under this new tax law.

How to use this calculator?

This calculator is designed to help you calculate the amount of tax you have to pay under the new tax plan announced by the President. We will also calculate the changes in your taxes under the 2 different tax regimes.

  1. Enter your age

This is straightforward, just enter your age into the calculator. If you happen to forget your age, you can always refer back to your passport, driving license, or passport. :)

  1. Determine your adjusted gross income (AGI)

To calculate how much tax you need to pay, you need to figure out how much adjusted gross income you are earning in a year. This information can be found on your tax form.

For instance, to be eligible for Child Tax Credit (CTC), you or your household needs to earn at least $2,500 per year and your annual income must be less than $200,000 for individuals and $400,000 for married couples.

  1. Check if you have filed your tax return

You can only receive any tax credit you are eligible for if you have filed your tax return. So, please check to confirm that!

  1. Check your filing status

Next, you need to check your filing status as it vastly impacts the amount of tax you have to pay. There are 3 different filing status:

  • Single
  • Married
  • Head of household
  1. Determine the number of dependents you have and their respective age

In order to determine the amount of tax credit you are eligible to under the Child Tax Credit (CTC), Child and Dependent Care Tax Credit (CDCTC), and the Earned Income Tax Credit (EITC), you need to enter how many dependents you have and which age groups they're in.

  • For CTC, you can receive up to $3,600 for each child you have who is below the age of 6 and you can receive up to $3,000 for each child who is between 6 and 17 (below 18 years old).
  • For CDCTC, you can receive $8,000 for each dependent you have, with a maximum of $16,000.
  • For EITC, if you have no dependents, and you are under the age of 25 or over the age of 65, you are eligible for this tax credit if your annual income is below $21,000. If you have any dependents under the age of 19 or your dependent is a student under the age of 24, or dependent with a disability, you are still eligible for the earned income tax credit.

Now, sit back and let our calculator do its magic!

Additional benefits and impacts of the Biden's Tax Plan

Besides the tax rate changes on your income, Biden's plan also consists of other components. Instead of affecting all the citizens, these changes are targeted at certain groups.

  • The child tax credit is increased from $2,000 to $3,600 for children under the age of 6 and $3,000 for children above 6 years old and under 17 years old.

  • The child and dependent care credit is proposed to be increased from $3,000 to $8,000 for each dependent, with a maximum of $16,000 to be claimed.

  • The eligibility criteria of earned income tax credit (EITC) are expanded to include workers under age 25 years old and workers over that age of 65. Furthermore, the size of the maximum benefit is also tripled from $534 to $1,502.

  • Instead of a 23.8% capital gains tax, investors with incomes over $1 million would have to pay a 43.4% capital gains tax.

  • The step-up in basis rule that applies to the inheritance of property will be repealed. That means any property being passed down to the next generation will be taxed. The good news is that family-owned farms are exempted from this rule and can avoid any additional taxes.

  • Real estate investors used to always defer their taxation when they exchange their property. The rule will no longer be applied to investors with more than $500,000 in capital gains.

Besides the changes in taxes that will affect our personal income, the corporate tax rates also have some changes.

  • The corporate tax rate now has a minimum of 15%.

  • Previously, investment partnerships like private equity and hedge funds often exploit the carried interest loopholes. This rule allows them to pay capital gains taxes only after they dispose of the carried interest, hence helping them to avoid paying the ordinary tax rates. Under the new tax plan, this rule will be canceled.

Changelog

June 2021

  • Based on the negotiations between the Democratic Party and the Republican Party, Biden has decided to drop the plan to hike the corporate tax rate from 21% to 28%. Instead, the President proposed to set a minimum corporate tax rate of 15%.

FAQ

What is the adjusted gross income (AGI)?

The adjusted gross income is the income that you will be taxed on. It is defined as your total gross income after some specific deductions, such as your 401k contributions.

What is child tax credit?

The child tax credit is a kind of tax break given to families with children under 17. Unlike a tax deduction, which reduces the amount of your income subject to income tax, the child tax credit directly cuts down your tax liability.

What is capital gains tax?

Capital gains tax is a tax on the profit realized by selling a stock. Usually, there are 2 types of capital gains tax, short-term and long-term. The long-term capital gains tax is typically lower to encourage investing.

Who are eligible for the Earned Income Tax Credit (EITC)?

In 2021, the President expanded the Earned Income Tax Credit (EITC). Any adults without children who are between the age of 25 and the age of 65 earning below $21,000 per year are eligible for the tax credit. If you have any dependents under the age of 19 or your dependent is a student under the age of 24, or dependent with a disability, you are still eligible for the earned income tax credit.

Wei Bin Loo and Maciej Kowalski, PhD candidate
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