Will I Have to Pay More in Taxes Under the New Legislation?

Will I Have to Pay More in Taxes Under the New Legislation?

November 17, 2021

In our November series, we’ve been highlighting potential changes to the tax laws and what they could mean for individual’s finances in the coming months. The Build Back Better Act outlines reconciliation from the government with regards to $1.75 Trillion in spending. So what does that mean for your individual tax rate? What about those capital gains you’ve been holding onto?

These are the questions that a lot of people have been asking. Let’s dive in a little deeper with this new proposal and what it means -

Under the suggested legislation, high-income earners would be subject to a surtax on their income. Right now, high income earners are defined as those filing single making over $400,000/year or those married filing joint making $450,000/year.

If you, or your family, is earning above those thresholds, the bill calls for an increase to the maximum marginal tax bracket. Currently the top individual tax bracket sits at 37% and the bill suggests an additional bracket at 39.6%.

Additionally, the bill suggests implementing the 3.8% Net Investment Income (NII) tax to individuals that materially participate in certain businesses, while excluding Net Operating Losses from accounting for NII. Finally, for those making above $10 Million, the bill implements a surcharge of 5%, and another 3% on earners above $25 Million. These surcharges are not isolated to income from wages, but also include things like capital gains.

Similar to the individual tax bracket, the bill proposes a raise to the maximum long-term capital gains and qualified dividends rate from 20% to 25%.

For families falling into the high-income earner threshold, these changes can certainly add up. If you think this is something that may impact you, discuss strategies that can help lessen your tax burden down the road. For some, this might mean realizing some of the long-term capital gains before the rates increase, for others it might mean looking into NII and seeing if that change would be applicable to you.

As we continue to see revisions to this bill, work with a wealth advisor, tax advisor and estate attorney to go over your unique situation and determine the best path forward for your goals.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.