President Joe Biden and Vice President Kamala Harris deliver remarks about healthcare in Raleigh, North Carolina on March 26, 2024.
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President Joe Biden and Vice President Kamala Harris released their annual tax returns Monday, and there are lessons within for average Americans, according to tax experts.
The president and first lady Jill Biden reported a joint adjusted gross income of $619,976 for 2023, which was 7% higher than in 2022. They paid federal income taxes of $146,629, and their effective tax rate was 23.7%.
Vice President Kamala Harris and her husband, Douglas Emhoff, showed an adjusted gross income of $450,299, which was slightly lower than their 2022 earnings. Their federal taxes were $88,570, and their effective tax rate was 19.7%.
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Interest income can be a ‘big surprise’
In 2023, both couples earned most of their income from salaries, with federal and state taxes withheld from employers.
Both couples also had interest income, which can cause a “big surprise” at tax time, without increased paycheck withholdings or quarterly estimated tax payments, explained David Silversmith, a certified financial planner and senior tax manager at Eisner Advisory Group in New York.
That’s why investors need to track taxable activity — such as dividends or fund distributions — in brokerage accounts, said Silversmith, who is also a certified public accountant.
While both couples made extra tax payments, they each incurred a small estimated tax penalty, based on underpayments from each quarterly deadline and interest. The Bidens paid a penalty of $285, while Harris and her husband owed $451.
Tax planning for self-employment income
Over the years, the Bidens have reduced self-employment taxes by receiving some wages through their companies, which are structured as S corporations.
After paying “reasonable compensation” to shareholders, S corporation owners can take distributions without paying 15.3% for Social Security and Medicare taxes.
While the couple only made $4,115 in royalties for 2023, the structure has previously offered significant savings for the couple’s book deals and speaking gigs.
However, working-age taxpayers with self-employment income would need to consider how lower wages could impact future Social Security income, said Catherine Valega, a certified financial planner and the founder of Boston-based Green Bee Advisory, who is also an enrolled agent.
Why that matters: The calculation for Social Security benefits uses up to 35 years of wages to calculate the monthly payments, she said.
Work with a tax professional
Typically, filers get a tax refund when they overpay levies throughout the year. Conversely, there’s generally a tax bill when filers don’t pay enough. Both tax returns showed the couples were fairly close on total taxes paid vs. owed.
When filing returns, “plus or minus $500 [for a refund or balance] is magical,” said Valega. “Both of them were spot on with that.”
If you’re a higher earner with “a little bit of complexity,” such as multiple sources of income, she recommends working with a tax professional to “dive into each piece of the pie.”
