March 10, 2021

Owing back taxes is something that tends to haunt you. You worry constantly about when the IRS will reach out and begin collection efforts, or you wonder when your payment plan will be accepted by them. If you work with a tax preparation professional, then you stay in frequent contact with them to ensure that your back taxes are not forgotten about. And then, when a new president is inaugurated and you know that tax changes are sure to follow, you think about what the new administration will do to either help or hurt you by making it easier to create and follow payment plans or by increasing tax collection efforts.

So, what does the Biden administration plan to do that will affect your taxes? Let’s dive into some detail here.

What Biden’s Win Means for Your Taxes

When Donald Trump became president four years ago, the economy was very different. At that time, businesses were booming. Thanks to programs enacted by the government under the Obama administration, the unemployment rate was low, and the Wall Street numbers were high. Things are not the same now. The COVID-19 pandemic has affected everything from large corporations to small ones. Many well-known companies, as well as sole proprietorships and family-run businesses have closed their doors, some temporarily and some forever. Unemployment is high as a result, and Biden’s administration has created an economic stimulus plan as a result.

The real question is: what does this mean for your taxes? Thanks to the stimulus plan and other measures that Biden plans to enact, the national deficit will be increasing, and someone needs to foot the bill, meaning that additional efforts to collect back taxes may be put into place.

Economic Stimulus Plans

Thankfully, some help may be on the horizon for those who are out of work or owe back taxes to the government. At this exact moment, an economic stimulus plan has passed through the House of Representatives and is now in the Senate. Part of this plan calls for a renewal of the extra unemployment pay that has been in place for almost a year, as well as a stimulus check for individuals making less than $100,000 a year and couples making less than $200,000. After a certain amount – $75,000 individually and $150,000 combined, the amount of the check is lowered. For those who make under those amounts, they will each receive $1,400. If you owe back taxes, then this would be a good way to start paying that amount back. Rather than keeping the stimulus check or spending it on other goods, why not use it to get back on track with your taxes?

Tax Hikes for Corporations and Wealthy Individuals

The Biden administration has made their plans very clear when it comes to increasing taxes for corporations and wealthy individuals. Back in 2017, the Trump administration lowered taxes for those making more than $400,000 per year from 39.6% to 37% through the Tax Cuts and Jobs Act. Although this seems like a small amount, it added up to quite a bit of savings. Now, with Biden planning to repeal the act, that additional money will be owed to the IRS at tax time once again.

On top of returning the income tax rate to what it was before for these top earners, the administration also plans to increase the Old-Age, Survivors, and Disability Insurance (also known as Social Security) tax on those making $400,000 or more. This new rate is going to be set at 12.4%, and it will be split between the individuals making the money and the company paying them, as it already is.

Capital gains taxes will rise as well, under the Biden plan, reaching 39.6% on amounts over $1 million dollars. The step-in basis for capital gains taxes will also be eliminated. Plus, for those making over $400,000 per year, the threshold for itemized deduction will be set at 28%, meaning that at that point, the deductions will be limited, allowing for a higher tax amount due.

As far as corporations are concerned, the income tax rate for them will rise to 28%, a 7% increase over the current 21% rate. There’s also a minimum tax that applies to corporations with over $1 million in book profits every year that’s very similar to the alternative minimum tax.

All of these new tax rates will go towards helping pay for the economic stimulus plan that is currently in the works, in hopes of preventing the national deficit from going up. Also, since tax rates will go up for both individuals and companies on the upper end of the economic spectrum, you can expect efforts to collect back taxes owed by them to increase as well, although nothing has so far been stated.

Student Loan Relief

In contrast to the tax hikes that the Biden administration will put into place for large corporations and the wealthy, they plan to enact a number of measures to help out those who make less money. For example, they plan to help individuals out by reducing the amounts that they owe in student loans. Although the amount of student loan relief has changed quite a bit over the first few weeks of Biden’s term, going from erasing $50,000 in debt to $10,000, they still intend to help those who have loans from schools that have gone under, leaving them without a degree, and those who are in a loan forgiveness plan designed for people who worked for non-profits or for the government.

How will the administration pay for this student loan relief? Regardless of the amount that ends up being finalized, they cannot add on to the national deficit, even though it will make people who hold loans more economically mobile. Instead, they are going to use the aforementioned tax hikes, as well as possibly increased back tax collection efforts in order to gather the money needed in order to remove part of the student loan balance.

Increasing Social Security

Social security, as in the amounts that eligible senior citizens receive, has been a large political football, so to speak, during the last presidential campaign. One of the plans that now-President Biden wants to enact will increase the monthly social security for certain seniors, particularly those who receive a small amount of money from the government on a monthly basis. In order to account for cost-of-living changes, such as notable increases in various costs, the administration wants to raise the special minimum benefit to 125% of the poverty level. This would place it at $1,301 per month. He also wants to increase survivor benefits by 20%, making it easier for widows, widowers, and surviving spouses with underage children to live on what they receive each month. In order to account for these increases without adding onto the deficit, which is in the hundreds of billions, those tax increases and additional back tax collection methods will make up for the difference. 

The Individual Health Insurance Mandate

One of the first things that President Trump did upon entering office was chip away at the Affordable Care Act by getting rid of the Individual Health Insurance Mandate. This part of the bill required people who did not have health insurance to pay a fine as a part of their yearly taxes due. If they were owed any taxes by the federal government in the form of a tax return, it was offset by the fine. In order to shore up the Affordable Care Act and gain more money for lower taxes and other benefits for the lower and middle class, the Biden administration wants to bring back the Individual Health Insurance Mandate. This will add to the amount of money that some people will owe on their taxes.

More Money for Lower- and Middle-Class Workers

Those who fall on the lower- and middle-class end of the spectrum, especially those who have been hit hard by the COVID-19 pandemic, losing their jobs or ending up temporarily furloughed, will end up with more money in their pockets, thanks to Biden’s tax plan. He plans to provide tax credits to those who make less than a certain amount per year and for those who qualify for them. For example, these tax credits include those given to first-time homebuyers, or those who work as caregivers for family members. The amounts of these tax credits are subtracted from what is owed to the IRS, giving those who qualify more money in their pockets after they file their taxes.

In addition to increasing tax credits and putting more into place, such as the ones that were in use during the Obama administration, Biden also plans to increase the Earned Income Tax credit (EIC). This credit is provided to those who make under a certain dollar amount or have other qualifying factors, such as children. By increasing the amounts of those eligible for the EIC, as well as raising the amount of the credit itself, the Biden administration will lower the amount of taxes that people at the bottom of the economic spectrum need to pay, thus providing them with a bigger tax return at the end of the year. Again, these tax relief efforts will be paid for by raising taxes for others, as well as increasing the collection efforts on back taxes.

Tax Collection Efforts

Although the Biden administration has not yet released any plans to change current tax collection efforts, with wealthier Americans and larger corporations paying more in taxes under his plans, you can almost certainly expect the IRS to ramp up their opportunities to collect on any back taxes that people and companies currently have due.

At this time, the plans enacted by the Trump administration to lessen the burden on those who owe taxes and are unable to pay them due to COVID-19 related problems, including being out of work or suffering from a lower amount of business, are still in place. Until things change, it is currently easier to temporarily lower the amount of your current IRS payment plan, as well as enter in a payment plan in the first place. What does this mean for you? Now is the time to take advantage of these options, because things may change as the Biden administration makes those planned changes to the tax code.

If you have questions about paying your back taxes or want to know if the Biden administration has made any changes that will affect your payment efforts, then reach out to the tax advisors at Enterprise Consultants Group. We can answer your questions, discuss your rights, and provide actionable options. Please contact us online or at (800) 575-9284 today to schedule a free and confidential consultation to see how we can help you.

Want to Know If Your Back Taxes Are Affected This Year?

Enterprise Consultants Group Can Help!
Contact Our Team Today.