President Joe Biden and Vice President Kamala Harris recently released their annual tax returns, shedding light on their financial situations and providing valuable lessons for average Americans. In 2023, President Biden and first lady Jill Biden reported a joint adjusted gross income of $619,976, marking a 7% increase from the previous year. They paid $146,629 in federal income taxes, with an effective tax rate of 23.7%. On the other hand, Vice President Harris and her husband, Douglas Emhoff, reported an adjusted gross income of $450,299, slightly lower than their 2022 earnings. They paid $88,570 in federal taxes, resulting in an effective tax rate of 19.7%.
Both couples primarily earned their income from salaries in 2023, with federal and state taxes automatically withheld by their employers. Additionally, they generated interest income, which can lead to surprises during tax season if not accounted for properly. Certified financial planner David Silversmith emphasized the importance of tracking taxable activity, such as dividends and fund distributions in brokerage accounts, to avoid unexpected tax liabilities.
Although both couples made extra tax payments, they incurred small estimated tax penalties due to underpayments throughout the year. The Bidens paid a penalty of $285, while Harris and her husband owed $451. It is crucial for taxpayers to stay on top of their tax obligations to avoid penalties and interest charges. For the Bidens, structuring their companies as S-corporations allowed them to reduce self-employment taxes by receiving wages and distributions. This strategy has been beneficial for maximizing tax savings on book deals and speaking engagements.
Impact on Social Security Benefits
However, taxpayers with self-employment income should consider how reducing wages could affect their future Social Security benefits. CFP Catherine Valega highlighted the importance of maintaining a steady income to ensure adequate payments into the Social Security system for calculating benefits. The calculation is based on up to 35 years of wages, and lower earnings could result in reduced benefits during retirement.
Typically, taxpayers receive a refund when they overpay taxes throughout the year, while underpayments result in a tax bill. Both the Bidens and Harris’s tax returns showed a relatively small difference between total taxes paid and owed, indicating a careful approach to tax planning. Valega noted that aiming for a balance within $500 when filing tax returns can help taxpayers avoid surprises and maintain financial stability.
The tax returns of President Biden and Vice President Harris serve as a valuable learning opportunity for average Americans. By understanding their sources of income, tax payments, and potential penalties, individuals can make informed decisions to optimize their own tax situations and plan for future financial security.