What the revised version means for individual taxpayers and businesses

On October 28, President Biden released a framework for the Build Back Better plan (BBB), summarizing $1.75 trillion in spending provisions over 10 years, along with revenue raisers stated to be around $2 trillion over that same period.  The House has included the framework provisions in a revised version of its BBB reconciliation package.  At the time of this writing, negotiations were still ongoing, so there will likely be more changes before any legislation is final.  It is expected there may be a vote on the reconciliation bill later in the week.

The bill has changed from its original $3.5 trillion price tag, with significant reductions in both expenditures and revenue raisers.  Gone are several social programs, including paid family & medical leave, free community college tuition, and the expansion of some Medicare benefits.  According to the White House, revenue generated by BBB is projected to be higher than expenditures, resulting in a reduced budget deficit. Necessarily, there are many tax related provisions in the bill; below are some of the more significant ones that may impact you.

First, let’s look at what is not in the bill:

  • Increase in corporate tax rate and tax on capital gains – gone is the proposed 26.5% corporate tax rate and the 25% rate on capital gains and dividends
  • Increase in individual tax rate back to 39.6%
  • Changes to estate and gift tax exemptions and grantor trusts
  • Increase in state and local tax deduction over current $10,000 limit
  • Retroactive denial of deductions for syndicated conservation easement contributions
  • Changes to the carried interest rules, retirement accounts
  • Changes to the 20% qualified business income deduction
  • Imposition of a “billionaire’s tax” on unrealized gains
  • Requirement of banks to disclose bank account activity of more than $10,000 to the IRS

What looks like it will make it into a final bill:

  • Surtax on high income individuals: an additional 5% surtax would be imposed on individuals with modified adjusted gross income over $10 million and an additional 3% would apply to incomes over $25 million (both beginning in 2022).
  • Surtax on non-grantor trusts: 5% tax on income over $200,000 and an additional 3% surtax on income over $500,000
  • Net investment income tax of 3.8% expanded to include “specified income” from a trade or business for those making over $400,000, effectively causing all income from pass-through entities to be subject to the 3.8% NIIT or the self-employment Medicare tax, also effective beginning in 2022
  • Expansion of electric vehicle credit to include used cars and trucks and raise the tax credit to $12,500 for vehicles made in America with American materials and union labor
  • Other individual provisions to include limitations on the exclusion for qualified small business stock gain, continuing the current limitation on excess business loses, and wash sale rules for cryptocurrency
  • A new 15% Corporate Profits Minimum Tax (CPMT) for corporations with over $1 billion in profits
  • A new 1% surtax on corporate stock buybacks
  • Several international tax provisions including limitations on interest deductions of international financial reporting groups with a new Section 163(n), and changes to Foreign Derived Intangible Income (FDII), Global Intangible Low Taxed Income (GILTI, Base Erosion and Anti-Abuse Tax (BEAT) and Subpart F
  • Extension of the current expensing of research and experimental costs through 2025
  • Heightened IRS enforcement of tax compliance

We can help

If you would like help in understanding how the Build Back Better plan may affect you and your business, please contact your Elliott Davis tax advisor.

The information provided in this communication is of a general nature and should not be considered professional advice.  You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.