The Build Back Better Act
President Biden’s Build Back Better Act is currently being considered by Congress and is making its way through the legislative process. The majority of the new legislation would take effect January 1, 2022. These are only provisions of the bill until it is voted on and signed by the President. These provisions should be taken into consideration when tax planning for the 2021 and 2022 tax years.
Major tax provisions of the Build Back Better Act include:
Individual Income Taxes
Increase the state and local tax (SALT) deduction from $10,000 to $80,000 through 2030. The $80,000 SALT cap amount would retroactively apply to the 2021 tax year.
Create a new surcharge on modified adjusted gross income, equal to 5 percent on MAGI in excess of $10 million plus 3 percent on MAGI above $25 million.
Extend the Child Tax Credit expansion through 2022, and make the entire CTC fully refundable on a permanent basis
Extend the temporary expansion of the Earned Income Tax Credit eligibility, phase-in rates, and amount through 2022
Limit Individual Retirement Accounts (IRAs) contributions when balances reach $10 million and accelerate required minimum distributions for those accounts
New cryptocurrency reporting requirements for brokers;
Other various provisions dealing with highway-related taxes and excise taxes.
The main business tax provision of the bill is the early expiration of the Employee Retention Credit. Under the bill, except for recovery start-up businesses, wages paid after September 30, 2021, are not eligible for the ERC.
Pass-through Business Taxes (S Corps, LLCs & Partnerships)
Expand the base of the 3.8 percent Net Investment Income Tax (NIIT) to apply to active business income for pass-through entities
Make the active pass-through loss limitation enacted in the 2017 Tax Cuts & Jobs Act permanent
Corporate Taxes
Impose a 15 % minimum tax on corporate book income for corporations with profits over $1 billion, effective for tax years beginning after December 31, 2022
Create a 1 percent excise tax on the value of stock repurchases during the taxable year, net of new issuances of stock, effective for repurchases after December 31, 2021. Excluded from the tax are stock contributed to retirement accounts, pensions, and employee-stock ownership plans.
Create a new limitation on interest expense deductions for certain multinational corporations, effective for tax years beginning after December 31, 2022
Other Tax Proposals
Delay the requirement to amortize research and development (R&D) expenses over five years, to begin after 2025
Modify, extend, and create a variety of tax credits for green energy and other efforts primarily through 2031 or 2033
Reinstate the Superfund tax on crude oil and imported petroleum at 16.4 cents per gallon (indexed to inflation), and double the reinstated Superfund tax on the sale of chemicals
Another major provision offers additional incentives to drivers. The new electric & plug-in hybrid vehicles incentive offer a credit up to $12,500. This is part of Biden’s green energy plan for the transportation industry.
The Build Back Better Act for the first time also would makes used cars eligible for a tax credit, up to $4,000 for buying a used electric or plug-in hybrid vehicle. Either the buyer or the seller of the used car can apply for the credit. The bill also contains a credit for electric motorcycles up to $7,500 There is also a credit for fuel-cell vehicles.
To qualify for tax credits, the electric vehicles do have a price limit. Vans, SUVs or pickup trucks need to be priced under $80,000 to be eligible for the credit; all other cars, the limit is $55,000.
As of publishing this article, these items are strictly provisional. The Build Back Better Act still needs to finish making its way through Congress and to the President’s desk for signature.
November 17, 2021