Ways and Means releases list of tax provisions for budget bill

The House of Representatives Committee on Ways and Means on Monday released a bill for proposed tax changes to be incorporated into the Budget Voting Act known as Build America Back Better. The committee plans to mark the bill on Tuesday and Wednesday. The proposal would increase corporate and individual tax rates and make many other changes to the Internal Revenue Code. Here are the highlights of the proposed changes.

Corporations and companies

Tax Rate: The proposal would replace the current flat corporate tax rate of 21% with a graduated rate starting at 18% on the first $ 400,000 of income; 21% of income up to $ 5 million; and 26.5% on revenues over $ 5 million. However, the tiered rate would be phased out for companies earning more than $ 10 million.

Limitation of interest deduction: The proposal would introduce a new Sec. 163 (n), which would limit the interest deduction of certain domestic companies that are members of an international accounting group to an allowable percentage of 110% of net interest paid. The interest cap would only apply to domestic businesses where the average net interest income versus three-year interest earned exceeds $ 12 million.

GILTI and FDII: The proposal would reduce the Sec. Deduction of 250 for both foreign intangible income (FDII, up to 21.875%) and global low-taxed intangible income (GILTI, up to 37.5%). Combined with the proposed corporate tax rate of 26.5%, this would result in a GILTI rate of 16.5625% and an FDII rate of 20.7%. The proposal would also provide for country-specific application of the GILTI scheme.

BEAT: The proposal would make several changes to the Anti-Erosion and Abuse Tax (BEAT). First, the BEAT rate in sec. 59A (b) (1) (A) will be changed to 10% in tax years beginning after December 31, 2021 and before January 1, 2024; to 12.5% ​​in tax years beginning after December 31, 2023 and before January 1, 2026; and to 15% in every tax year beginning after December 31, 2025. Second, the minimum tax amount for base erosion would be determined taking tax credits into account.

Carried Interests and Capital Gains: The proposal would generally extend the holding period from three to five years required for profits attributable to an applicable corporate interest in order to qualify for long-term capital gains treatment. The provision would maintain the three-year hold for real estate businesses or corporations and taxpayers with adjusted gross income (AGI) less than $ 400,000. The proposal would also include Sec. 1061 on all assets that are eligible for long-term capital gain rates.

Sec. 1202 Stock: The proposal provides that the special exclusion rates of 75% and 100% for profits from certain qualifying small business stocks do not apply to taxpayers with an AGI of $ 400,000 or more. The 50% baseline exclusion in sec. 1202 (a) (1) would be available to all taxpayers.

Individuals

Tax rates: The proposal would increase the highest individual income tax rate to 39.6%. This limit rate would apply to married individuals filing with taxable income greater than $ 450,000; to head of households with taxable income greater than $ 425,000; to unmarried persons with taxable income in excess of US $ 400,000; married individuals filing separate returns with taxable income greater than $ 225,000; and to estates and trusts with taxable income above $ 12,500.

Capital gains: The proposal would increase the capital gains tax rate to 25%. A transitional arrangement would provide that the current statutory tax rate of 20% for profits and losses would continue to apply for the part of the tax year before the introduction. Profits recognized later in the same tax year that result from transactions entered into prior to the introductory date under a written binding contract are treated as incurred prior to the introductory date.

Net capital gains tax: The proposal would reduce the Sec. 1411 Net capital gains tax to cover net capital income generated in the ordinary course of trading or business for taxpayers with taxable income greater than US $ 400,000 (single filers) or US $ 500,000 (joint filers), as well as trusts and estates.

Qualified Company Income Deduction: The proposal would set the maximum allowable deduction under Art. 199A at $ 500,000 in the case of a joint return, $ 400,000 for an individual return, $ 250,000 for a married person filing a separate declaration, and $ 10,000 for a trust or Estate.

Limiting Excessive Business Losses: The proposal would change Section 2. 461 (l) to permanently prohibit excessive corporate losses (ie, net corporate deductions in excess of corporate income) for non-corporate taxpayers.

High Income Surcharge: The proposal would impose a tax equal to 3% of a taxpayer’s modified AGI (MAGI) over $ 5 million (or more than $ 2.5 million for a separate married individual filing). To this end, MAGI would mean that the AGI is reduced by any deduction of investment interest (as defined in Section 163 (d)).

Unified Loan: The proposal would reset the Unified Loan for inheritance and gift taxes to $ 5 million per taxpayer, adjusted for inflation.

retirement provision

Contributions to IRAs: The proposal would prohibit further contributions to a Roth or traditional IRA for a tax year if the total value of an individual’s IRA and defined contribution pension accounts generally exceeds $ 10 million at the end of the previous tax year. The contribution cap would only apply to single taxpayers (or separated married taxpayers) with taxable income above $ 400,000, married taxpayers filing with taxable income above $ 450,000, and householders with taxable income above 425,000 US dollars (all indexed to inflation).

RMDs: For high income taxpayers as defined in the previous point, a minimum distribution would be required for the following year. The minimum payout would generally be 50% of the amount by which the total balance of the Traditional IRA, Roth IRA, and the defined contribution account of the previous year exceeds the $ 10 million mark. As far as the combined balance in Traditional IRAs, Roth IRAs, and Defined Contribution Plans is 20M, the amount required to bring the total balance of all accounts to $ 20 million, or (2) the total balance in the Roth IRAs and Designated Roth Accounts in defined contribution plans.

Roth Conversions: The proposal would provide Roth Conversions for both IRAs and employer-sponsored plans for single taxpayers (or separated married taxpayers) with taxable income over $ 400,000, for married taxpayers who combined with taxable income over $ 450,000 Submit, and for heads of households with taxable income, eliminate over $ 425,000 (all inflation-indexed).

Other provisions

Paid family and sick leave: The proposal would end employer imputation for wages paid to employees during family and sick leave for tax years from 2023 instead of the current expiration date of 2025.

Restructuring of S companies: The proposal would allow eligible S companies to restructure into partnerships without incurring taxes. A qualifying S company would be any company that was an S company on May 13, 1996 (prior to the publication of the applicable check box rules regarding company classification).

Job Opportunity Tax Credit: The proposal would increase the job opportunity tax credit to 50% on the first $ 10,000 in wages through December 31, 2023 for all WOTC audiences except summer workers.

– Alistair M. Nevius, JD, (Alistair.Nevius@aicpa-cima.com) is JofA’s Editor-in-Chief for Taxes.