Build Back Better – The House Version
Are You Ready? Key Planning Opportunities in Anticipation of Upcoming Tax ChangesNovember 23, 2021
The Build Back Better Act (BBBA) was passed by the U.S. House of Representatives on Friday, November 19, 2021. The bill is expected to undergo changes when it reaches the Senate.
Nevertheless, below are some highlights of the tax changes from the House’s version of the bill that taxpayers should be aware of.
Income Tax Surcharge
The BBBA includes a new two-stage personal income tax surcharge. A five percent charge applies to the modified adjusted gross income of taxpayers earning more than $10,000,000 ($5 million for a married taxpayer filing separately), with an additional three percent charge to the modified adjusted gross income of taxpayers with income in excess of $25 million ($12,500,000 million for a married taxpayer filing separately). Note, the surcharge application to trusts and estates have a much lower income threshold of $200,000 and $500,000. This surcharge would apply for tax years beginning after 2021.
Net Investment Income Tax
The bill expands the 3.8 percent of net investment income (NII) tax to S corporation shareholders, limited partners, and LLC members not currently subject to the NII tax on income received from the pass-through entities because they materially participate in the operations. This change applies to joint filers with income in excess of $500,000 ($400,000 for heads of households and single filers, $250,000 for married taxpayers filing separate returns). The provision is effective for tax years beginning after 2021.
Excess Business Losses
The provision that was set to expire in 2026 that limits pass-through losses to $500,000 (and adjusted for inflation) was made permanent.
The State and Local Tax deduction cap was raised to $80,000 from the $10,000 in the BBBA.
Credits and Other Notables
- The bill extends the extra $250-$300 monthly payments per child that parents earning up to $150,000 are currently receiving and makes the credit permanently refundable.
- The bill includes funding for universal pre-kindergarten starting with high-need, low-income areas first.
- Four weeks of paid parental and medical leave starting in 2024 for workers who do not receive this benefit from their employers.
$300 billion would go to expanding tax credits for renewable power, electric vehicles, biofuel, and energy efficiency.
Internal Revenue Service
The bill would give the Internal Revenue Service an additional $80 billion to hire more audit examiners, improve customer service and implement new technology.
Corporate Alternative Minimum Tax (AMT)
The BBBA imposes a corporate AMT for tax years beginning after 2022. The AMT would equal 15 percent of the corporation’s adjusted financial statement income for the tax year, reduced by a corporate foreign AMT credit. The law would apply to corporations with average annual adjusted financial statement income of more than $1 billion for the three prior tax years.
The BBBA includes a one percent excise tax on stock repurchases by domestic corporations whose stock trades on the established securities market. The tax would apply to repurchases after 2021.
Business Interest Expense
The Act offers a limitation on the net interest expense that is allowed as a deduction by a domestic corporation that is part of a multinational group that prepares consolidated financial statements and has average interest expense of $12 million annually over the prior three years. The deduction for such a corporation net interest expense (interest expense over interest income) is limited to 110 percent for the group’s net interest expense. This limitation would apply to tax years starting after 2022.
- A series of changes that will increase tax on companies that shift profits offshore.
- The imposition of a 15 percent global minimum tax on corporate foreign profits.
Currently, these provisions are still subject to change and heavy negotiations in the U.S. Senate are expected. We will keep you informed of any changes that occur as the BBBA progresses.
If you have any questions about how you may proactively address the impact that these provisions may have on you, please contact Joseph Molloy or your Anchin Relationship Partner.