How 4 State-of-the-Union Tax Proposals May Affect You

3 February 2015

In his State of the Union address on January 20, President Barack Obama proposed changes to the tax code that would increase taxes for higher-income individuals and lower them for middle-class taxpayers. Here are the possible implications of four of the President’s proposals. We chose these four in particular because they represent situations we frequently see in our practice.

Read on for our insights, and please give us a call if you’d like to know more about how these proposed changes may impact you – we’re always happy to listen, and dedicated to creating tailored solutions that fit your specific situation.

1. Raise the top capital gains and dividend tax for high-income households to 28%, the rate under President Reagan.

The top rate applies to couples whose joint income tops $500,000.

2. Eliminate the “stepped-up basis” for inherited assets that are transferred at death.

This change to the so-called “trust-fund loophole” would require non-spouse heirs to pay capital gains tax on the appreciation of assets at the date of death. For example, say you leave assets worth $5 million to an heir (other than your spouse). If you originally paid $1 million for the stocks, your heir would pay the effective capital gains tax rate on the difference.

These taxes are in addition to an estate taxes you would pay if your estate is worth more than $5.4 million.

For couples, no tax would be due until the second spouse dies, and up to $200,000 per couple could still be bequeathed tax-free. (The proposal doesn’t address the marital exemption, and it’s not yet clear whether it would include retirement accounts.)

3. Create a tax credit for two-earner families.

The President proposed a new $500 “second-earner” credit to help cover the additional costs faced by families in which both spouses work. Families would claim a credit equal to 5% of the first $10,000 of earnings for the lower-earning spouse in a married couple; the maximum credit would be available to families with incomes up to $120,000, with a partial credit available up to $210,000.

4. Increase the childcare tax credit to $3,000.

The President has proposed tripling the maximum Child and Dependent Care Tax Credit (CDCTC) to as much as $3,000 for each child under the age of 5. The President’s proposal would make the maximum credit—for young children, older children, and elderly or disabled dependents—available to families with incomes up to $120,000.

However, this is not a refundable tax credit: if your income is so low that you wouldn’t have any federal tax liability, you wouldn’t be eligible for the credit.

Confused or concerned? We can help you navigate and understand these changes.

These proposals for tax increases for the wealthy—combined with a proposal that would impose a 7-basis-point fee on the liabilities of large U.S. financial firms—would result in increased revenue of $320 billion over 10 years. This would be used to pay for some of the other proposals, such as free community college for two years.

Many of these proposals have yet to be fleshed out in committee, but it doesn’t hurt to be aware of them now so you can plan ahead and avoid surprises. Rigby Financial Group offers extensive services in the areas of personal financial planning and tax planning. Please contact us to discuss in more detail how these proposals might affect you.


The information presented here is not specific to any individual’s personal circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.