On November 19, 2021 the House of Representatives passed the
Build Back Better Act (BBA). This
version of the act is far different from the original. While there still could be changes as the act
moves through the Senate, here is a brief overview of what was approved by the
The original act included an increase to the top rates for both individual tax rates and capital gains rates. The most recent act does not include such an increase bur rather an income tax surcharge. The surcharge is in two-stages and is based on the modified adjusted gross income (MAGI) of individuals, estates and trusts. A filer that is joint, single, or head of household (HOH) with a MAGI in excess of $10 million ($5 million for those MFS) will be charged an additional 5% tax on that excess. If the MAGI is in excess of $25 million ($12.5 for MFS) an additional 3% will be charged. This applies to tax years beginning after 2021 and applies to estates and trusts with MAGI in excess of $200,000 or $500,000, respectively.
The BBA as proposed will increase the number of those taxpayers impacted by the net investment income tax. Joint filers with income in excess of $500,000 ($400,000 for HOH and single filers; $250,000 for MFS) that are S corporation shareholders, limited partners, or LLC members, regardless of participation in the activity, will now be subject to NIIT of 3.8%.
One other major provision in the bill is expanding the state and local income tax deduction from $10,000 to $80,000 for joint, single, and HOH ($40,000 for MFS). The expansion would be applicable through 2030, the cap would return to $10,000 effective 2031.
Additional individual changes include:
- Making the prohibition of excess business losses of non-corporate taxpayers that is applicable through 2026 permanent
- Extending child tax credits through 2022 including the refundability of the credit beyond 2022
- Extending the earned income tax credit for childless taxpayers through 2022
- Various health care credits including extension of the rule that allows the premium tax credit to households whose income exceeds 400% of the poverty line
- Electric vehicle tax credit and multiple other green energy credits
The corporate alternative minimum tax (AMT) is back. The corporate AMT was repealed as part of the tax cuts and jobs act, but the BBA is proposing the AMT be effective for tax years beginning after 2022. Basic details include a rate of 15 percent that would be imposed on the corporation's "adjusted financial statement income" for the tax year and reduced by a corporate AMT foreign tax credit. This AMT would apply to businesses with average annual adjusted financial statement income in excess of $1 billion for the three prior tax years.
Other business provisions include but are not limited to:
- an excise tax equal to 1 percent on stock repurchases by domestic corporations whose stock is traded on an established securities market (applies to repurchases after 2021)
- limitation of the net interest expense allowed as a deduction by specified domestic corporations (applies to tax years beginning after 2022)
- treatment of losses as capital losses in the case of worthless securities or partnership interests
Most of the international provisions have not been modified from the original bill. International provisions include but are not limited to:
- Reduction of FDII and GILTI Deductions from 37.5% to 21.875% and 50% to 37.5%, respectively
- Elimination of the CFC One-month Deferral
- Foreign tax credit changes including limitations on the tax credit on a country-by-country basis
- Inclusion of GILTI in the income of a shareholder of a CFC (on a country-by-country basis)
- Changes to calculating Subpart F income of CFC shareholders if the shareholder is a taxable unit that is a tax resident of the U.S.
Be on the lookout for additional information as we wait for Senate approval. In the meantime, please do not hesitate to reach out to your trusted advisor at HLB Gross Collins to get any additional guidance.
- by Abigail Hampton, CPA