Pub. 3 2021 Issue 3

15 nebraska society of cpas W W W . N E S C P A . O R G with taxable income below the threshold amounts. For those with taxable income above the threshold amounts, §199AW-2 wage requirements and depreciable basis (also known as UBIA) calculations have resulted in hundreds of pages of regulations. President Biden has proposed phasing out the deduction entirely as taxable income exceeds the threshold amounts. In other words, lower-income taxpayers would still be entitled to a 20% QBI deduction without regard to W-2 wages, depreciable basis, or specified service business restrictions. Wealthy taxpayers would no longer be entitled to the QBI deduction. To ease the impact of this change, the thresholds could be raised to match the top of the individual tax bracket (currently $523,600 for single and $628,300 for married filing joint filers.) Here are the 2021 QBI deduction thresholds. Retirement Benefits. President Biden has proposed a refundable tax credit of a f lat 26% for contributions to a retirement plan. A f lat credit would boost the benefit of retirement savings for those in a low tax bracket and reduce the benefit for those in a tax bracket above the proposed 26% credit. If I were advising the President, I’d say that dropping the tax benefit of retirement contributions to 26% is drastic. This is going to need a political and economic compromise. Not only will the proposed retirement benefit change need to be phased in over the next four years (my arbitrary timeline to soften the blow of tax increases to our fragile economy), but the number is wrong. Maybe it can be a 26% refundable credit for low-income taxpayers to encourage savings, and perhaps it can be a 32% non-refundable credit for those in higher brackets so that higher-income taxpayers are not discouraged from saving for retirement. Here is the 2021 tax rate chart for you to review when considering the advisability of the proposed retirement tax benefit changes. Note: President Biden’s American Rescue Plan (ARP) enacted one-year expansions of three refundable tax credits: the Child Tax Credit (CTC), the Earned Income Tax Credit (EITC), and the Child andDependentCareTaxCredit (CDCTC). Child Tax Credit. President Biden’s American Rescue Plan enacted a one- year expansion of the Child Tax Credit. The credit begins to phase out at AGI of $200,000 ($400,000 for married filing joint taxpayers). President Biden increased the child credit for one year to $3,000 per child ($3,600 for a child under age 6). The credit is fully refundable, and dependent children age 17 and under would qualify for the credit. This is the stimulus that is needed during the COVID crush. My only request would be that parents of dependent college students should qualify for the credit. Make the age of the qualifying dependent child 22 and under, as long as the child is a full-time student. Parents are continuing to pay tuition for their college kids, even though COVID has hit their income. They also need relief. Child andDependent CareCredits. President Biden’s American Rescue Plan enacted a one-year expansion of the Child and Dependent Care Tax Credit. The credit raised the maximum value of the child and dependent care tax credit for just one year to $4,000 for one child under age 13, or $8,000 for two or more children. The credit is refundable to help low-income families with their child care costs. Families making between $125,000 and $400,000 would receive a partial credit. My comment? It’s about time that the child care credit comes even close to the actual cost of child care. This should be a permanent change. Earned IncomeCredit. PresidentBiden’s ARP has introduced a few minor changes to the Earned Income Tax Credit. His credit raises the EITC for childless adults to $1,500, up from $538. His refundable credit removes the 65-year age cap so that the EITCwould be available to more older workers. t Sharon Kreider, CPA has helped more than 15,000 California tax preparers annually get ready for tax season for the past two decades. With a keen ability to demystify complex individual and business tax legislation, Kreider instructs Western CPE tax seminars andpresents regularly for theAICPA, theCaliforniaSocietyof EnrolledAgents, andA.G. Edwards. She gainedher detailed, hands-on tax knowledge through her extremely busy, high- income tax practice in SiliconValley. For more information, contact Western CPE’s customer service center at (800) 822-4194 or wcpe@westerncpe.com . ©2021 SharonKreider Threshold Limits QBI Deduction for High-Income Qualified Business Owners 2021 Begin Phaseout Fully Phased Out MFJ $329,800 $429,800 Head of Household $164,925 $214,925 Single $164,900 $214,900 2021 Individual Tax Rates & Brackets 2021 Taxable Income Tax Rate MFJ HOH Single 10% Not Over $19,900 Not Over $14,200 Not Over $9,950 12% Over $19,900 Over $14,200 Over $9,950 22% Over $81,050 Over $54,200 Over $40,525 24% Over $172,750 Over $86,350 Over $86,375 32% Over $329,850 Over $164,900 Over $164,925 35% Over $418,850 Over $209,400 Over $209,425 37% Over $628,300 Over $523,600 Over $523,600