The House Ways and Means Committee is working on a $3.5 trillion spending and tax package the Democrats are hoping to pass through the budget and reconciliation process, which would not require support from the Republicans. Many of the new tax legislation provisions included in this bill includes elements from President Biden’s Build Back Better Act. Following is a summary of the major provisions of the bill. Unless otherwise noted, the effective dates for the provisions are January 1, 2022.
Corporate Taxes
- Change the corporate tax rate structure to a progressive tax rate for all corporations other than personal service corporations. Corporations that are taxed as personal service corporations will be taxed at a flat 26.5% rate. For other corporations, the income thresholds and rates would be:
- $0-$400,000 – 18%
- $400,000-$5 million – 21%
- More than $5 million – 26.5%
- Allow research and development costs to be expensed instead of requiring the cost to be amortized (beginning 2022 vs 2026).
- Increase the Work Opportunity Tax Credit (WOTC) to 50% of the first $10,000 in wages paid to an employee in his or her first or second year of employment.
Individual Taxes
- Introduce a new 3% surtax on individuals with a modified adjusted gross income over $5 million for single, head of household, and married filing joint returns, or $2.5 million for married individual filing separately.
- Expand the Net Investment Income Tax (NIIT) to include all earnings from pass-through businesses for taxpayers with taxable income greater than $400,000 (single filers) or $500,000 (joint filers).
- Increase the top ordinary income rate to 39.6% for taxpayers with income over the following thresholds:
- Single – $400,000
- Head of household – $425,000
- Married filing joint – $450,000
- Married filing separate – $250,000
- Trusts and estates – $12,500
- Limit the maximum Section 199A qualified business income deduction to:
- Single – $400,000
- Married filing joint – $500,000
- Married filing separate – $250,000
- Trust and estates – $10,000
- Increase the top capital gains rate to 25% to taxpayers with income over the following thresholds:
- Single – $400,000
- Head of household – $425,000
- Married filing joint – $450,00
- Married filing separate – $250,000
The new capital gains rate is expected be retroactive and apply to all sales occurring after September 13, 2021.
- Prohibit all IRA contributions when the total balance of the taxpayers IRAs and other retirement accounts reaches $10 million and their taxable income exceeds the following thresholds:
- Single – $400,000
- Married filing joint – $450,000
- Married filing separate – $400,000
- Extend and make permanent many provisions of the Child Tax Credit, Earned Income Tax Credit, Child and Dependent Care Tax Credit, and Premium Tax Credit.
Estate & Gift Taxes
- Decrease the estate and gift tax exemption to $5 million.
- Require grantor trusts to be included in a decedent’s taxable estate when the decedent is deemed the owner of the trust. This provision is effective the date of enactment, which is currently unknown.
- No longer allow valuation discounts when taxpayers transfer business interests that own nonbusiness assets.
International Taxes
- Increase Global Intangible Low-Taxed Income (GILTI) rate to 16.5%.
- Calculate GILTI on a country-by-country basis.
- Reduce the Qualified Business Asset Investment (QBAI) to 5% under GILTI.
- Increase the Foreign-Derived Intangible Income tax rate to 20.7%.
- Limit the interest expense deduction for certain multinational corporations.
- Modify the Base Erosions and Anti-abuse Tax (BEAT).
The House of Representatives is currently working on passing the bill. They were supposed to vote on the bill last week but have pushed the vote back. They are hoping to pass the bill by the end of October. Once the bill is passed by both the House and the Senate, it will go to the President to be signed in the law.
Contact us so we can help you understand how these new tax legislation provisions will impact you and build tax strategies that reflect these proposed changes.
