Top earners in New York City could face a combined city, state and federal income tax rate of 61.2%, which would be among the highest in nearly 40 years, according to plans being proposed by Democrats in the House of Representatives, reports CNBC.
The Ways and Means Committee released details of the plan today, including a 3% surtax on taxpayers earning more than $5 million a year. It would also raise the top marginal income tax rate to 39.6%. “This marginal rate applies to married individuals filing jointly with taxable income over $450,000, to heads of households with taxable income over $425,000, to unmarried individuals with taxable income over $400,000, to married individuals filing separate returns with taxable income over $225,000, and to estates and trusts with taxable income over $12,500,” according to the plan.
The House plan is still a proposal and could change, CNBC says.
In addition, CNBC reports the plan also includes Californians’ highest earners — they face a combined marginal rate of 59.7%. In addition, top-earners in New Jersey would face a combined rate of 57.2%, while those in Hawaii could face combined rates of 57.4%.
“The most likely result for New Yorkers is more New Yorkers living in Palm Beach. This is a pretty hefty tax liability, especially considering that when Ronald Reagan passed his massive tax reform, he eliminated many tax benefits in order to get to his lower rates,” Tom Wheelwright, CPA and author of Tax-Free Wealth, tells GOBankingRates.
These measures — and others — which were floated in a plan yesterday, would help pay for the $3.5 billion Build Back Better Agenda “a plan to create jobs, cut taxes and lower costs for working families — all paid for by making the tax code fairer and making the wealthiest and large corporations pay their fair share,” according to its description on the White House website.
The plan would also replace the flat corporate income tax with a graduated rate structure. The rate structure provides for a rate of 18% on the first $400,000 of income, 21% on income up to $5 million and a rate of 26.5% on income thereafter. The benefit of the graduated rate phases out for corporations making more than $10,000,000. Personal services corporations are not eligible for graduated rates, according to the Ways and Means Committee plan.
Andrew Bates, a White House spokesman, told The New York Times that the outline “makes significant progress toward ensuring our economy rewards work and not just wealth by cutting taxes for middle-class families, reforming the tax code to prevent the offshoring of American jobs and making sure the wealthiest Americans and big corporations pay their fair share.”
Wheelwright says that developing a plan of action with your CPA and your attorney is the best way to keep your taxes to a minimum.
“This requires effort on your part and good communication with your advisors and between your advisors. For specifics, people should think about selling assets with high unrealized gains now to lock in the lower rates. However, it is not clear that the tax rates will be prospective only — they could be retroactive to earlier in the year so selling now may result in the higher rates. Tough call,” he adds.
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