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Joe Biden’s tax plan has become a regular target for misinformation, with social media posts falsely claiming that it would crush middle-income families, raise taxes on 82% of Americans, and even dissolve the stock market altogether. Now, a popular post says the Democratic presidential nominee aims to tax 401(k) accounts if he’s elected. Biden slipped up and came out saying he’s going to tax your 401k. Are any of you EVEN paying attention? it reads. This Facebook post was flagged as part of Facebook’s efforts to combat false news and misinformation on its News Feed. (Read more about our partnership with Facebook .) The post doesn’t cite any evidence or sources backing up its claims. We looked for a literal statement from Biden to this effect and didn't find one. The Biden campaign platform doesn’t include any reference to a tax on 401(k) accounts. The only proposal that the post could be referring to is Biden’s plan to balance out retirement plan tax benefits so that they apply equally to people across incomes. Biden would do this by replacing the current deduction for retirement account contributions with a 26% refundable tax credit. Tax policy experts told us that it’s still misleading and inaccurate to characterize this plan as a tax on 401(k) accounts. Here we’ll break down the proposal in detail, tackling both its direct and indirect impacts. The Biden tax credit plan Under the current tax system, taxpayers get to deduct contributions to 401(k)s when they calculate their adjusted gross income on their income tax returns. Later, when those funds are withdrawn in retirement, the person will pay deferred taxes on their contributions and earnings. This system tends to benefit upper income earners more than those with lower income, tax policy experts told us. For example, a person with $8,000 of taxable income is currently subject to a 10% income tax rate. If this person contributed $100 to a retirement account, their taxable income would go down from $8,000 to $7,900, allowing them to save $10 in taxes. On the other hand, a person with $530,000 of taxable income is currently subject to a 37% tax rate. If this person contributed $100 to a retirement account, their taxable income would go down from $530,000 to $529,900, allowing them to save $37 in taxes. Even though these taxpayers both deducted the same amount of money from their taxable income, they save different amounts on their tax bills because they face different marginal tax rates, said Erica York, an economist with the Tax Foundation. This phenomenon is true across all deductions. Biden’s proposal aims to equalize the benefit of retirement contributions across income scales by giving people a 26% refundable tax credit deposited directly into their retirement account instead of a deduction. This would mean that each taxpayer would receive a flat benefit for contributions, rather a benefit that increases in proportion to taxable income. In effect, taxpayers in lower income brackets would see larger benefits from Biden’s plan, while taxpayers in higher income brackets would see reduced benefits. Gordon Mermin, senior research associate at the Urban-Brookings Tax Policy Center, said that it’s not accurate to characterize the Biden plan as a tax on 401(k) accounts, because these accounts would still be tax subsidized for everyone. End of the day, everyone still sees their taxes reduced when contributing to a 401(k). Some contributors with incomes below 400,000 will get larger tax subsidies than under current law, some with incomes below 400,000 will see no change in their tax break for saving, and contributors with incomes above 400,000 will generally get smaller tax subsidies than under current law, he wrote in an email to PolitiFact. Our ruling A Facebook post claims, Biden slipped up and came out saying he’s going to tax your 401k. Biden doesn’t want to tax 401(k) accounts. Instead, he wants to balance out retirement plan tax benefits so that they apply equally to people across incomes by replacing the current deduction with a 26% refundable tax credit. Tax policy experts said that it’s misleading to characterize Biden’s proposal as a tax on 401(k) accounts, because everyone would still see their taxes reduced when contributing to a retirement account. We rate this claim False.
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