President Joe Biden and Vice President Kamala Harris have released their 2021 tax returns, and there are a few key takeaways for the average American, experts say.
The president and first lady Jill Biden reported a joint adjusted gross income of $610,702, paying $150,439 in federal income tax at a 24.6% effective tax rate.
Vice President Kamala Harris and her husband, Douglas Emhoff, showed roughly $1.7 million in earnings, spending $523,371 in federal taxes at a 31.6% tax rate.
Both returns were similar to 2020, putting them in the top 1% of filers, according to IRS data. By comparison, the average American paid 13.3% in 2019, according to the Tax Foundation.
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“They’re both overpaying, particularly Kamala and her husband,” said Eric Pierre, an Austin, Texas-based certified public accountant, owner of Pierre Accounting and co-host of the CPA Huddle podcast.
For example, Harris earned more than $450,000 in gross earnings as a writer in 2021 and skipped the chance to save on payroll taxes by structuring her business as an S-corporation.
After paying employee shareholders reasonable compensation, owners may also take distributions without the combined 15.3% for Social Security and Medicare taxes.
“She’s probably going to make a lot more than her husband when she’s not in office,” he said, adding how an S-corporation may provide significant future savings.
There may also be missed opportunities for Emhoff, who received nearly $600,000 in partnership income in 2021, Pierre said.
The Bidens trimmed their self-employment tax bill by receiving some wages through their company structured as an S-corporation, which provided significant savings for the couple’s book deals and speaking gigs in 2017 and 2018.
They could further reduce their bill by padding retirement savings with contributions to a Solo 401(k) or SEP individual retirement account, said certified financial planner Sharif Muhammad, founder and CEO of Unlimited Financial Services in Somerset, New Jersey.
Overall, both returns show modest tax-reduction strategies compared to private citizens with similar earnings, Pierre said.
But they receive other perks, such as the president’s $50,000 annual expense account, housing, transportation and more. In the corporate world, these benefits may be taxable compensation, he explained.
It seems like they’re conservative in the way they do their taxes.Sharif MuhammadFounder and CEO of Unlimited Financial Services
“It seems like they’re conservative in the way they do their taxes,” said Muhammad.
Moreoever, the Bidens have significant withholdings from their W-2 earnings in lieu of estimated tax payments for their self-employment income, he pointed out.
“It’s kind of a set-it-and-forget-it type of approach,” Muhammad said.
Both couples may also consider estate tax planning strategies, particularly with provisions from the Tax Cuts and Jobs Act scheduled to sunset in 2026, Pierre said. While the current exemption for federal estate taxes is more than $12 million per person for 2022, it will revert to an estimated $6 million.