A new presidential administration often means a variety of new tax law changes. In this four-part series, we’ll offer a closer look at some of the tax law changes being proposed by President Joe Biden and the House Ways and Means Committee. The series will include a review of the American Families Plan, estate and gift tax changes, corporate tax changes, and today’s post — individual tax changes.

Please keep in mind that many of these changes are, at this point, still proposed changes and will not officially become part of the tax law until they are enacted by Congress.

Payroll Tax Changes

•  The Social Security Tax “cap” is removed, and a 12.4% Social Security old age, survivors, and disability insurance (OASDI) tax is added for income over $400,000. The tax will be split equally among employers and employees.
•  A “donut hole” exists since wages between $142,500 and $400,000 are exempt from OASDI. This is intended to make up the gap between Social Security inflow and outflow while not overtaxing the upper-middle class.

Income Tax Changes

The 39.6% top marginal tax rate that applies to Single taxpayers making over $400,000, Head of Household taxpayers making over $425,000 and Married Filing Jointly taxpayers making over $450,000 is restored.

• A 3% surtax is applied to Adjusted Gross Income over $5 million.
• The Net Investment Income Tax (NIIT) is expanded.

Capital Gains Tax Rates

• The current top tax rate on capital gains and qualified dividends increases from 20% to 25%.

Retirement and 401k Changes

• Contributions to ROTH and traditional IRAs are banned if the total value of the individual’s IRA and defined contribution accounts exceeds $10 million.
• New Required Minimum Distribution (RMD) rules for individuals with IRAs and defined contribution retirement accounts with balances over $10 million and $20 million are instituted.
• ROTH conversions for Single taxpayers with income over $400,000 and Married Filing Jointly taxpayers with income over $450,000 are eliminated.

Erin Sunday is the Vice President, Investment & Trust Services Relationship Manager at F&M Trust.