Preparing for Potential Tax Increases Under the Biden Administration
The Biden Administration’s American Families Plan and other tax proposals may complicate the tax landscape for high-income earners. Many of the proposals target taxpayers earning more than $400,000 per year.
The American Families Plan proposals include:
- Increasing the top marginal income tax rate to 39.6% for households making over $400,000;
- Taxing long-term capital gains at 39.6% for households making over $1 million;
- Reducing the step-up in basis for gains in excess of $1 million at death and taxing the gains if the property is not donated to charity;
- Eliminating carried interest and taxing that income at ordinary income rates;
- Permanently extending excess business loss limitation rules; and
- Applying the 3.8% net investment income tax consistently for those making over $400,000.
To add significance to these proposals, President Biden also proposes earmarking $80 billion for IRS audit efforts that will target high-income individuals who have engaged in tax avoidance or other tactics to reduce their taxable income. The additional funding will be accompanied by increased IRS enforcement powers.
In addition, President Biden previously put forth the following proposals during his election campaign:
- Phasing out the 20% qualified business income tax deduction;
- Limiting the benefit of itemized deductions to 28% of their value and restoring the “Pease limitation” cap on itemized deductions;
- Reducing the lifetime estate tax exemption from $11.7 million to $3.5 million (back to 2009 levels) and increasing the estate and gift tax rate from 40% to 45%; and
- Imposing the 12.4% social security payroll tax on earned income above $400,000.
These proposals, although not specifically mentioned in the American Families Plan, continue to be part of the President’s tax agenda.
What Can Taxpayers Do Now?
Given the real possibility of targeted tax increases on the wealthy, as well as the uncertainty of when any increases might take effect, individuals, business owners and family offices should review their current situations to identify opportunities in which their overall federal and state tax liabilities could be minimized.
- Taxpayers should evaluate the extent to which they can time the recognition of income and deductions within a desired tax year. Planning should not only be driven by current and future tax rates but also by the taxpayer’s individual facts and circumstances, including income and cash goals.
- Due to the uncertainty of whether tax legislation will ultimately be passed, and to what extent, tax planning efforts should include multiple “what-if” scenarios to prepare for a range of possible legislative outcomes and effective dates.
- As the future tax landscape takes shape, taxpayers should consider strategies to minimize tax on their capital gains, such as:
- Accelerating capital gains to take advantage of lower rates;
- Managing levels of other taxable income to avoid higher rates on capital gains;
- Timing when tax is due by using or electing out of the installment method; and
- Using deferral strategies such as like-kind exchanges and investments in qualified opportunity zones.
Individuals and families should revisit their estate plans considering President Biden’s tax proposals. Individuals — especially those with large estates — should evaluate the benefits of multi-generational wealth transfers, the use of trusts and other estate planning opportunities, and be prepared to implement strategies in advance of proposals becoming law.
The IRS has released the annual inflation adjustments for 2026 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.
The IRS has released the annual inflation adjustments for 2026 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.
2026 Income Tax Brackets
For 2026, the highest income tax bracket of 37 percent applies when taxable income hits:
- $768,700 for married individuals filing jointly and surviving spouses,
- $640,600 for single individuals and heads of households,
- $384,350 for married individuals filing separately, and
- $16,000 for estates and trusts.
2026 Standard Deduction
The standard deduction for 2026 is:
- $32,200 for married individuals filing jointly and surviving spouses,
- $24,150 for heads of households, and
- $16,100 for single individuals and married individuals filing separately.
The standard deduction for a dependent is limited to the greater of:
- $1,350 or
- the sum of $450, plus the dependent’s earned income.
Individuals who are blind or at least 65 years old get an additional standard deduction of:
- $1,650 for married taxpayers and surviving spouses, or
- $2,050 for other taxpayers.
Alternative Minimum Tax (AMT) Exemption for 2026
The AMT exemption for 2026 is:
- $140,200 for married individuals filing jointly and surviving spouses,
- $90,100 for single individuals and heads of households,
- $70,100 for married individuals filing separately, and
- $31,400 for estates and trusts.
The exemption amounts phase out in 2026 when AMTI exceeds:
- $1,000,000 for married individuals filing jointly and surviving spouses,
- $500,000 for single individuals, heads of households, and married individuals filing separately, and
- $104,800 for estates and trusts.
Expensing Code Sec. 179 Property in 2026
For tax years beginning in 2026, taxpayers can expense up to $2,560,000 in section 179 property. However, this dollar limit is reduced when the cost of section 179 property placed in service during the year exceeds $4,090,000.
Estate and Gift Tax Adjustments for 2026
The following inflation adjustments apply to federal estate and gift taxes in 2026:
- the gift tax exclusion is $19,000 per donee, or $194,000 for gifts to spouses who are not U.S. citizens;
- the federal estate tax exclusion is $15,000,000; and
- the maximum reduction for real property under the special valuation method is $1,460,000.
2026 Inflation Adjustments for Other Tax Items
The maximum foreign earned income exclusion amount in 2026 is $132,900.
The IRS also provided inflation-adjusted amounts for the:
- adoption credit,
- earned income credit,
- excludable interest on U.S. savings bonds used for education,
- various penalties, and
- many other provisions.
Effective Date of 2026 Adjustments
These inflation adjustments generally apply to tax years beginning in 2026, so they affect most returns that will be filed in 2027. However, some specified figures apply to transactions or events in calendar year 2026.
Rev. Proc. 2025-32
IR-2025-103
The IRS has released the 2025-2026 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:
The IRS has released the 2025-2026 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:
- the special transportation industry meal and incidental expenses (M&IE) rates,
- the rate for the incidental expenses only deduction,
- and the rates and list of high-cost localities for purposes of the high-low substantiation method.
Transportation Industry Special Per Diem Rates
The special M&IE rates for taxpayers in the transportation industry are:
- $80 for any locality of travel in the continental United States (CONUS), and
- $86 for any locality of travel outside the continental United States (OCONUS).
Incidental Expenses Only Rate
The rate is $5 per day for any CONUS or OCONUS travel for the incidental expenses only deduction.
High-Low Substantiation Method
For purposes of the high-low substantiation method, the 2025-2026 special per diem rates are:
- $319 for travel to any high-cost locality, and
- $225 for travel to any other locality within CONUS.
The amount treated as paid for meals is:
- $86 for travel to any high-cost locality, and
- $74 for travel to any other locality within CONUS
Instead of the meal and incidental expenses only substantiation method, taxpayers may use:
- $86 for travel to any high-cost locality, and
- $74 for travel to any other locality within CONUS.
Taxpayers using the high-low method must comply with Rev. Proc. 2019-48, I.R.B. 2019-51, 1392. That procedure provides the rules for using a per diem rate to substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.
Notice 2024-68, I.R.B. 2024-41, 729 is superseded.
Notice 2025-54
The IRS has issued transitional guidance for reporting certain interest payments received on specified passenger vehicle loans made in the course of a trade or business during calendar year 2025. The guidance applies to reporting obligations under new Code Sec. 6050AA, enacted as part of the One Big, Beautiful Bill Act (P.L. 119-21).
The IRS has issued transitional guidance for reporting certain interest payments received on specified passenger vehicle loans made in the course of a trade or business during calendar year 2025. The guidance applies to reporting obligations under new Code Sec. 6050AA, enacted as part of the One Big, Beautiful Bill Act (P.L. 119-21).
Under Code Sec. 163(h)(4), as amended, "qualified passenger vehicle loan interest" is deductible by an individual for tax years beginning in 2025 through 2028. Code Sec. 6050AA requires any person engaged in a trade or business who receives $600 or more in such interest from an individual in a calendar year to file an information return with the IRS and statements to the borrowers. The information return must include the borrower’s identifying information, the amount of interest paid, loan details, and vehicle information.
Recognizing that lenders may need additional time to update their systems and that the Service must design new reporting forms, the Treasury Department and the IRS have granted temporary relief. For calendar year 2025 only, recipients may satisfy their reporting obligations by providing a statement to each borrower by January 31, 2026, indicating the total amount of interest received in calendar year 2025 on a specified passenger vehicle loan. This information may be delivered electronically, through online portals, or via annual or monthly statements.
No penalties under Code Sec. 6721 or 6722 will be imposed for 2025 if recipients comply with this transitional reporting procedure. The notice is effective for interest received during calendar year 2025. The IRS estimates that approximately 35,800 respondents will issue about 8 million responses annually, with an average burden of 0.25 hours per response.
Notice 2025-57
IR 2025-105
The IRS issued updates to frequently asked questions (FAQs) about Form 1099-K, Payment Card and Third-Party Network Transactions (Code Sec. 6050W). The updates reflect changes made under the One, Big, Beautiful Bill Act (OBBBA), which reinstated the prior reporting threshold for third-party settlement organizations (TPSOs) and provided clarifications on filing requirements, taxpayer responsibilities, and penalty relief provisions. The updates supersede those issued in FS-2024-03. More information is available here.
The IRS issued updates to frequently asked questions (FAQs) about Form 1099-K, Payment Card and Third-Party Network Transactions (Code Sec. 6050W). The updates reflect changes made under the One, Big, Beautiful Bill Act (OBBBA), which reinstated the prior reporting threshold for third-party settlement organizations (TPSOs) and provided clarifications on filing requirements, taxpayer responsibilities, and penalty relief provisions. The updates supersede those issued in FS-2024-03. More information is available here.
Form 1099-K Reporting Threshold
Under the OBBB, the reporting threshold for TPSOs has been restored to the pre-ARPA level, requiring a Form 1099-K to be issued only when the gross amount of payments exceeds $20,000 and the number of transactions exceeds 200. The lower $600 threshold established by the American Rescue Plan Act (ARPA) no longer applies. The IRS noted that while the federal threshold has increased, some states may impose lower thresholds, and TPSOs must comply with those state-level reporting requirements.
Taxpayer Guidance
The FAQs explain that a Form 1099-K reports payments received through payment cards (credit, debit, or stored-value cards) or payment apps and online marketplaces used for selling goods or providing services. All income remains taxable unless excluded by law, even if not reported on a Form 1099-K.
If a Form 1099-K is incorrect or issued in error, taxpayers should contact the filer listed on the form to request a correction. If a corrected form cannot be obtained in time, taxpayers may adjust the reporting on Schedule 1 (Form 1040) by offsetting the erroneous amount when filing their return.
New Clarifications and Examples
The updated FAQs include expanded examples to help taxpayers properly determine income and filing obligations:
- Sales of personal items – How to determine taxable gain or nondeductible loss on items sold through online platforms?
- Crowdfunding proceeds – When contributions are taxable income versus nontaxable gifts.
- Backup withholding – How failure to provide a valid taxpayer identification number (TIN) can result in withholding under Code Sec. 3406?
- Multiple Forms 1099-K – How to report combined or duplicate forms properly using Schedule 1 (Form 1040)?
Third-Party Filer Responsibilities
The FAQs reaffirm that merchant acquiring entities and TPSOs are responsible for preparing, filing, and furnishing Form 1099-K statements. There is no de minimis exception for payment-card transactions. Entities that submit payment instructions remain subject to penalties under Code Sec. 6721 and 6722 for failing to file or furnish correct information returns. TPSOs are not required to include Merchant Category Codes (MCCs), while merchant acquiring entities must do so where applicable.
Ticket Sales and Executive Order 14254
The updated FAQs also address Executive Order 14254, Combating Unfair Practices in the Live Entertainment Market, issued in March 2025. The IRS clarified that income from ticket sales and resales is includible in gross income and subject to reporting. Payment settlement entities facilitating these sales must issue Form 1099-K when federal thresholds are met, and non-PSE payors may be required to issue Form 1099-MISC or Form 1099-NEC for payments of $2,000 or more made after December 31, 2025.
Reliance and Penalty Relief
Although the FAQs are not published in the Internal Revenue Bulletin (IRB) and cannot be used as legal precedent, the IRS confirmed that taxpayers who reasonably and in good faith rely on them will not be subject to penalties that allow for a reasonable-cause standard, including negligence or accuracy-related penalties, if such reliance results in an underpayment of tax.
FS-2025-8
IR-2025-107
For 2026, the Social Security wage cap will be $184,500, and Social Security and Supplemental Security Income (SSI) benefits will increase by 2.8 percent. These changes reflect cost-of-living adjustments to account for inflation.
For 2026, the Social Security wage cap will be $184,500, and Social Security and Supplemental Security Income (SSI) benefits will increase by 2.8 percent. These changes reflect cost-of-living adjustments to account for inflation.
Wage Cap for Social Security Tax
The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:
- a 6.2 percent social security tax, also known as old age, survivors, and disability insurance (OASDI); and
- a 1.45 percent Medicare tax, also known as hospital insurance (HI).
For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:
- a 12.4 percent OASDI tax; and
- a 2.9 percent HI tax.
OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.
For 2026, the wage base is $184,500. Thus, OASDI tax applies only to the taxpayer’s first $184,500 in wages or net earnings from self-employment. Taxpayers do not pay any OASDI tax on earnings that exceed $184,500.
There is no wage cap for HI tax.
Maximum Social Security Tax for 2026
For workers who earn $184,500 or more in 2026:
- an employee will pay a total of $11,439 in social security tax ($184,500 x 6.2 percent);
- the employer will pay the same amount; and
- a self-employed worker will pay a total of $22,878 in social security tax ($184,500 x 12.4 percent).
Additional Medicare Tax
Higher-income workers may have to pay an Additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:
- $250,000 for married taxpayers who file a joint return;
- $125,000 for married taxpayers who file separate returns; and
- $200,000 for other taxpayers.
The annual wage cap does not affect the Additional Medicare tax.
Benefit Increase for 2026
Finally, a cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2026 by 2.8 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.
Social Security Fact Sheet: 2026 Social Security Changes
SSA Press Release: Social Security Announces 2.8 Percent Benefit Increase for 2026
The IRS issued frequently asked questions (FAQs) addressing the limitation on Employee Retention Credit (ERC) claims for the third and fourth quarters of 2021 under the One, Big, Beautiful Bill Act (OBBBA). The FAQs clarify when such claims are disallowed and how the IRS will handle related filings.
The IRS issued frequently asked questions (FAQs) addressing the limitation on Employee Retention Credit (ERC) claims for the third and fourth quarters of 2021 under the One, Big, Beautiful Bill Act (OBBBA). The FAQs clarify when such claims are disallowed and how the IRS will handle related filings.
Limitation on Late Claims
ERC claims filed after January 31, 2024, for the third and fourth quarters of 2021 will not be allowed or refunded after July 4, 2025, under section 70605(d) of the OBBBA.
Previously Refunded Claims
Claims filed after January 31, 2024, that were refunded or credited before July 4, 2025, are not affected by this limitation. Other IRS compliance reviews, however, may still apply.
Withdrawn Claims
An amended return withdrawing a previously claimed ERC after January 31, 2024, is not subject to section 70605(d). The IRS will process such amended returns.
Filing Date
An ERC claim is considered filed on or before January 31, 2024, if the return was postmarked or electronically submitted by that date.
Processing of Other Items
If an ERC claim is disallowed under section 70605(d), the IRS may still process other items on the same return.
Appeals Rights
Taxpayers whose ERC claims are disallowed will receive Letter 105-C (Claim Disallowed) and may appeal to the IRS Independent Office of Appeals if they believe the claim was timely filed.
FS-2025-7
IR-2025-106
The IRS identified drought-stricken areas where tax relief is available to taxpayers that sold or exchanged livestock because of drought. The relief extends the deadlines for taxpayers to replace the livestock and avoid reporting gain on the sales. These extensions apply until the drought-stricken area has a drought-free year.
The IRS identified drought-stricken areas where tax relief is available to taxpayers that sold or exchanged livestock because of drought. The relief extends the deadlines for taxpayers to replace the livestock and avoid reporting gain on the sales. These extensions apply until the drought-stricken area has a drought-free year.
When Sales of Livestock are Involuntary Conversions
Sales of livestock due to drought are involuntary conversions of property. Taxpayers can postpone gain on involuntary conversions if they buy qualified replacement property during the replacement period. Qualified replacement property must be similar or related in service or use to the converted property.
Usually, the replacement period ends two years after the tax year in which the involuntary conversion occurs. However, a longer replacement period applies in several situations, such as when sales occur in a drought-stricken area.
Livestock Sold Because of Weather
Taxpayers have four years to replace livestock they sold or exchanged solely because of drought, flood, or other weather condition. Three conditions apply.
First, the livestock cannot be raised for slaughter, held for sporting purposes or be poultry.
Second, the taxpayer must have held the converted livestock for:
- draft,
- dairy, or
- breeding purposes.
Third, the weather condition must make the area eligible for federal assistance.
Persistent Drought
The IRS extends the four-year replacement period when a taxpayer sells or exchanges livestock due to persistent drought. The extension continues until the taxpayer’s region experiences a drought-free year.
The first drought-free year is the first 12-month period that:
- ends on August 31 in or after the last year of the four-year replacement period, and
- does not include any weekly period of drought.
What Areas are Suffering from Drought
The National Drought Mitigation Center produces weekly Drought Monitor maps that report drought-stricken areas. Taxpayers can view these maps at
https://droughtmonitor.unl.edu/Maps/MapArchive.aspx.
However, the IRS also provided a list of areas where the year ending on August 31, 2025, was not a drought-free year. The replacement period in these areas will continue until the area has a drought-free year.
Notice 2025-52
IR-2025-93
The IRS and Treasury have issued final regulations setting forth recordkeeping and reporting requirements for the average income test for purposes of the low-income housing credit. The regulations adopt the proposed and temporary regulations issued in 2022 with only minor, non-substantive changes.
The IRS and Treasury have issued final regulations setting forth recordkeeping and reporting requirements for the average income test for purposes of the low-income housing credit. The regulations adopt the proposed and temporary regulations issued in 2022 with only minor, non-substantive changes.
Low-Income Housing Credit
An owner of a newly constructed or substantially rehabilitated qualified low-income building in a qualified low-income housing project may be eligible for the low-income housing tax credit (LIHTC) under Code Sec. 42. A project qualifies as a low-income housing project it satisfies certain set-aside tests or alternatively an average income test.
Under the average income test, at least 40 percent (25 percent in New York City) of a qualified group of residential units must be both rent-restricted and occupied by low-income individuals. Also, the average of the imputed income limitations must not exceed 60 percent of the area median gross income (AMGI).
Recording Keeping and Reporting Requirements
The regulations provide procedures for a taxpayer to identify a qualified group of residential units that satisfy the average income test. This includes recording the identification in the taxpayer’s books and records, including a change in a unit’s imputed income limit. The taxpayer also must communicate the annual identification to the applicable housing agency.
The final regulations clarify the submission of a corrected qualified group when the taxpayer or housing agency realizes that a previously submitted group fails to be a qualified group. The housing agency is also allowed the discretion to permit a taxpayer to submit one or two lists qualified groups of low-income units to demonstrate compliance with the minimum set-aside test and the applicable fractions for the building.
(T.D. 10036)
