After a long election season, we have at least some clarity regarding control of the presidency and the U.S. Senate. At this point, barring successful litigation or recounts by President Donald Trump’s campaign in multiple jurisdictions, Joe Biden is the president-elect. Control of the Senate, on the other hand, will not become clear until Georgia holds its runoff election in early January. Even if Republicans are able to secure a thin majority in the Senate, it is possible that a Biden administration could push its agenda forward by picking up crossover votes among Republicans. In the tax realm, the two parties’ plans are strikingly distinct. Given these potential shifts in tax policy that would upend several provisions passed under the Trump administration, this article provides an overview of areas that merit attention from taxpayers and tax planners going into 2021 and, in some cases, ways that tax planning can help mitigate the impact of these potential changes when planning year-end tax strategies.

Income and Payroll Tax Issues

Currently, there is a 12.4% Social Security payroll tax that is split between an employer and an employee. As currently constituted, this tax disappears on wage earnings over $137,700. The reasoning for the cap on this tax, which is adjusted annually for inflation, is that benefits that a retired worker receives are likewise capped. Therefore, since the inception of this tax, there has been the attempt to link benefits received to the amount “paid in” to Social Security system. Under Biden’s proposal, the tax would apply to wage amounts up to $137,700 and over $400,000, leaving what some refer to as a “donut-hole” of wage earners who would not be subject to an increase. Coupled with an increase in the top individual income tax rates would revert back to pre-2018 levels, high-income earners could see a major increase in their income and payroll taxes.

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