President Obama’s 2016 Budget Proposal was just released and includes a number of tax proposals that would increase the taxes on higher-income taxpayers and provide more tax breaks for low- to middle-income taxpayers. The following are some highlights of the proposal that would impact individuals and small businesses – but remember, these are proposals only.
- President Obama’s 2016 Budget proposal would allow a credit of up to $3,000 (50% credit for up to $6,000 of expenses per child), for each child under the age of 5.
- Would enable gainful employment of the parent(s) or other qualified taxpayer.
- The regular credit for those ages 5 through 12 would begin to phase out at $120,000, instead of $15,000 under the current law.
- Flexible spending accounts for child care would be eliminated.
Second Earner Tax Credit:
- Would provide a new tax credit up to $500 (5% of the first $10,000 of earnings for the lower-earning spouse) for joint filers with two wage earners.
- Would begin to phase out at $120,000 income.
- Would fully phase out when family income reaches $210,000. It is estimated that this new credit would benefit 24 million joint filers.
Earned Income Tax Credit (EITC)
- Would double the EITC for workers without a child. It would also increase the credit applicability for childless workers with earnings up to 150% of the federal poverty level (currently about 125%).
- Would expand the applicability of the EITC to workers age 21 to 66 (currently 24 to 64).
Education Tax Benefits – The American Opportunity Tax Credit (AOTC):
- Would be expanded from the current AOTC to cover five years of post-secondary education
- The current $2,500 tax credit would be adjusted for inflation.
- The refundable portion of the AOTC would be increased to $1,500.
- Part-time students would be eligible for a $1,250 AOTC (up to $750 refundable).
- Duplicative and less effective provisions, including the Lifetime Learning Credit, the tuition and fees deduction, the student loan interest deduction (for new borrowers), and Coverdell accounts (for new contributions) would be repealed or allowed to expire.
- The credit would be better coordinated with Pell Grants with the President Obama’s 2016 Budget proposal.
Top Capital Gains Rate:
- Would raise the top effective capital gains and qualified dividends tax rate to 28% (24.2% plus the 3.8% net investment income tax).
- For couples, the 28% rate would apply where income is more than $500,000 annually.
- Would limit to 28% the value of itemized deductions and other tax preferences for married taxpayers with incomes over $250,000 and individual taxpayers with income over $200,000.
- The limit would apply to all itemized deductions.
- The limit would also apply to other tax benefits, such as tax-exempt interest and tax exclusions for retirement contributions and employer-sponsored health insurance.
Limit Retirement Account Contributions:
- Would prohibit contributions to and accruals of additional benefits in tax-preferred retirement plans and IRAs once balances are about $3.4 million.
- Would be about enough to provide an annual income of $210,000 in retirement.
President Obama’s 2016 Budget proposal would implement the Buffett Rule. This rule, which is a carryover from prior year budget proposals, would require the wealthy to pay at least a 30% effective tax rate.
These are all proposals by the Obama administration. Keep in mind that they still must be approved by Congress. The information is being passed along so you will have an idea of what might happen in the future.
Questions About the President Obama’s 2016 Budget Proposal?
Do these provisions and rules confuse you? Are you concerned what the president’s 2016 budget has in store for you, if it is passed? If you have thoughts, questions or concerns regarding how your taxes are filed, contact us or visit any one of our locations. You may also leave your comments below or post on our Facebook, Google+ or LinkedIn pages.