Joe Biden’s Tax Plan: Who Benefits?

The Average Working Family Could See Their Costs Decrease

Key points

  • Biden is proposing an expansion to the Child and Dependent Care Credit, which currently gives caregivers a tax credit to offset the cost of care.
  • Given what we know about Biden’s tax plan so far, the average working family – particularly parents, caregivers, and renters – could see their costs decrease.
  • Biden is also proposing to increase the Child Tax Credit from $2,000 to $3,000 per child for those between 6 and 17 years of age.

Given what we know about Biden’s tax plan so far, the average working family – particularly parents, caregivers, and renters – could see their costs decrease. 

Caregivers will likely receive tax savings

Biden is proposing an expansion to the Child and Dependent Care Credit, which currently gives caregivers — parents or guardians with kids under age 13 or those who live with a disabled dependent — a tax credit to offset the cost of care. Currently, the non-refundable credit is worth between 20% and 35% of $3,000 for one dependent ($6,000 for two or more), with lower percentages for higher earners.

Under Biden’s proposal, that credit would increase the limit for eligible expenses from $3,000 to $8,000 ($16,000 for more than one dependent) and bump the 35% credit percentage up to 50%, according to the Committee for a Responsible Federal Budget, an independent, non-profit, bipartisan public policy organization. It would also reportedly make the credit refundable. A non-refundable credit requires you to pay the full amount of the credit in taxes in order to benefit. So if you had a non-refundable credit worth $6,000 but only paid $5,000 in tax, you would not receive the $1,000 excess credit. If the credit were refundable, however, you would pocket the $1,000.

It’s not clear whether that bump up to 50% would be across the board; it’s possible that higher earners would see a smaller percentage (somewhere between the current 20% minimum and the 50%). But if it was increased to 50% for all those eligible for the tax credit, Jason Deshayes, Director of Tax Planning at Cook Wealth Management Group, offers an example of what this could look for someone who has two kids and — with their spouse — brings in a total annual income of $80,000: if the couple pays $10,000 per year for childcare, under current law they only get to count the first $6,000 when calculating their credit. This gives them a credit of $1,200 — or 20% of $6,000. Under the Biden proposal, the credit could amount to as much as $5,000 (50% of $10,000). So under current law, this couple would pay $8,800 in net childcare cost, after factoring in the credits, compared to potentially just $5,000 under Biden’s plan.

That is a substantial cost reduction for the average working family.

The presidential candidate’s plan mentions a $5,000 tax credit for informal caregivers to cover expenses or caring for a loved one as well. The proposal doesn’t specify what this would cover, but Deshayes says it could include making modifications to a house or getting equipment necessary to care for someone — both of which are potentially very expensive investments.

Biden is also proposing to increase the Child Tax Credit from $2,000 to $3,000 per child for those between 6 and 17 years of age, and $3,600 for those under 6 — but only for the “duration of the crisis.” The expansion of the credit was initially proposed in the HEROES Act, which the House of Representatives passed in May. The credit would also be full refundable.

Read the full story at Money.com

Reposted with permission from author Mallika Mitra.