(Nov. 29, 2021) — Numerous tax provision changes affecting individuals, estates, and corporations were included in the version of President Joe Biden’s Build Back Better Act that members of the House of Representatives passed Friday with a vote of 220-213. The bill will now be considered in the Senate and—if passed—is expected to be signed into law.
Individuals and estates would be impacted by:
• A new 5% surtax on modified adjusted gross income (AGI) exceeding $10 million for individuals, $5 million for married taxpayers filing separately, and $200,000 for an estate or trust; and an additional 3% tax on individual incomes over $25 million, $12.5 million for married taxpayers filing separately, and $500,000 for an estate or trust.
• An expansion of the 3.8% net investment income tax to apply to the investment income from business sources of single filers earning more than $400,000, and joint filers making more than $500,000 ($250,000 for married taxpayers filing separately).
• A permanent disallowance of the excess business losses of noncorporate taxpayers.
• A $10 million cap on individual retirement account balances by both limiting new contributions and imposing a minimum distribution for any excess.
• A raised cap on the federal deduction for state and local taxes (SALT), up to $80,000 from the currently imposed $10,000. The higher cap would stay in place through 2030, revert to $10,000 in 2031 and expire in 2032.
Tax provisions related to corporations would include:
• A new 15% minimum tax on the profits of certain corporations reporting more than $1 billion in profits to shareholders. Corporations with foreign parents with an annual adjusted financial statement income of more than $100 million would also pay this minimum tax. The tax would be calculated on their adjusted financial statement income for the year over the amount of their corporate AMT foreign tax credit.
• A 1% surcharge on the fair market value of stock buybacks by publicly-traded U.S. corporations, including any subsidiary, effective for repurchases of stock after Dec. 31, 2021.
• Reduced deductions for foreign income of U.S. companies with foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI).
• An increased base erosion and anti-abuse tax (BEAT) rate of 18%, up from the current 10%.
The bill would maintain the 21% corporate tax rate set by the Tax Cuts and Jobs Act of 2017, which protects most small and mid-sized corporations from tax increases.
Overall, the plan would provide $44.9 billion in additional fiscal year 2022 Internal Revenue Service tax enforcement funding, including for digital-asset monitoring.
The Senate is expected to make extensive changes to the bill before a potential vote in December.
We will continue to monitor developments on this and other bills currently in Congress and alert our clients as we learn more.
In the meantime, if you have any questions about the above information or would like to discuss how the proposed legislation might impact you, please contact your E. Cohen advisor.