The House of Representatives passed HR 5376, the Build Back Better Act, on Friday morning Nov 19, 2021, by 220-213 votes. The bill covers a wide range of budget and spending provisions and has been the focus of lengthy negotiations in recent weeks.
The vote on the bill came after the Congressional Budget Office (CBO) released its cost estimate for the bill. The CBO estimates that the bill will cost nearly $ 1.7 trillion and will add $ 367 billion to the federal deficit over 10 years. Adding $ 207 billion of unscored revenue estimated to be the result of increased taxation on the bill, the total net increase in the deficit would be $ 160 billion.
The bill contains many new tax provisions in addition to revision to existing ones, all designed to provide incentives to taxpayers and raise revenue to pay for spending on the bill. HR 5376 now goes to the Senate for consideration; their fate there cannot be predicted.
A nontax provision in the bill is the provision of four weeks of paid leave benefits for care leave. These paid leave benefits would not be considered gross income to the beneficiary for tax purposes under a new Sec. 139J.
Among the many tax provisions in the bill (as found in House Rules Committee Print 117-18) are the following:
One-year extension of the extended child tax credit; permanent extension of the refund
Changes to the child tax credit enacted by the American Rescue Plan Act (ARPA), P.L. 117-2, for 2021 it will run through 2022. This would include a requirement that the IRS make advance payments on the credit during 2022. Taxpayers whose adjusted gross income (AGI) exceeds $ 150,000 for joint taxpayers, $ 112,500 for heads of household, or $ 75,000 for other taxpayers would not be eligible for advance payments.
The bill would extend the refundability of the child tax credit beyond 2022.
The bill would also implement new rules to prevent fraud. For advance payments to taxpayers who file joint returns, half will be credited to each individual who files the joint return.
Expanded Earned Income Tax Credit Extension
The bill would extend the changes to the earned income tax credit that were enacted by ARPA through 2022. The increase in earned income and elimination amounts would be indexed to inflation in 2022.
SALT deduction limit
The bill would increase Sec. 164 (b) limitation on the deduction of state and local taxes from $ 10,000 to $ 80,000 ($ 40,000 for married taxpayers filing separate returns and for trusts and estates) but would extend the limitation until 2031.
Extended premium tax credit
The bill would increase the amounts of premium assistance in Sec. 36B through 2025. The bill would also extend through 2025 the rule that allows the premium tax credit to certain taxpayers whose household income exceeds 400% of the poverty line. The bill would also change the employer-sponsored coverage affordability test in the premium tax credit through 2025.
The bill would exclude a portion of balloon payments for Social Security benefits when determining family income for credit purposes. The bill would also exclude the first $ 3,500 of income for dependents under 24 years of age.
Through 2025, the bill would also allow certain low-income employees who are offered employer-provided health coverage to claim the credit. The bill would also make the Sec. 35 health coverage credit permanent, which is currently scheduled to expire in late 2022.
15% minimum tax on the profits of large corporations
The bill would impose a minimum tax of 15% on the profits of corporations that report more than $ 1 billion in profits to shareholders. Any corporation (other than an S corporation, regulated investment company, or real estate investment trust) that during any three-year period has an adjusted average annual income from financial status (as defined in new Sec. 56A ) of more than $ 1 billion and, in the case of foreign parent corporations, have adjusted annual financial statement income greater than $ 100 million, would pay a tax of 15% of their adjusted financial statement income for the year on the amount of your corporate AMT foreign tax credit.
1% surcharge on corporate share buybacks
The bill would impose a tax equal to 1% of the fair market value of any share of a corporation that the corporation repurchases during the year, effective for share buybacks after December 31, 2021. The provision would apply to any national corporation whose shares are traded on an established stock market.
Limitation of the deduction of interest expenses
The bill would add a new Sec. 163 (n) that limits the amount of net interest expenses of certain domestic corporations (or foreign corporations involved in a trade or business in the US) that are members of a group international financial reporting. The provision limits the deduction of interest expense to a “permitted percentage” of 110% of the national corporation’s net interest expense.
Changes to FDII and GILTI
The bill would reduce the applicable percentage in Sec. 250 (a) for the deduction of foreign-derived intangible income (FDII) from 37.5% to 24.8% and the applicable percentage for the deduction of global low-tax intangible income. (GILTI) from 50% to 28.5%, resulting in an effective FDII rate of 15.8% and an effective GILTI rate of 15%. The bill would also allow the FDII deduction to be taken into account when determining a net operating loss deduction.
Second. 951A would be amended so that the GILTI provisions apply on a country-by-country basis, based on the taxable units of controlled foreign companies.
Foreign tax credit limitation
The bill would amend Sec. 904 to apply the limitation of the foreign tax credit on a country-by-country basis, per taxable unit. Taxable units would include the taxpayer’s own corporation, each foreign corporation of which the taxpayer is a shareholder, the taxpayer’s interests in a passthrough entity, and any branches of the taxpayer. The bill would also repeal the return of the foreign tax credit. Changes to the foreign tax credit will apply to tax years beginning after December 31, 2022.
Minimum country-by-country tax on foreign earnings of US corporations
The bill would amend Sec. 59, a base erosion and abuse tax to gradually increase the applicable percentage from 10% to 12.5% in 2023, 15% in 2024 and 18% after 2024. The amounts would not be subject to the base erosion and abuse tax. if they were subject to an effective foreign tax rate of at least 15% (or 18% after 2024).
Small Business Stocks and High Income Taxpayers
The bill would amend Sec. 1202 to reject the exclusion of 75% and 100% of the profit from the sale of shares if the taxpayer’s adjusted gross income is greater than $ 400,000 or if the taxpayer is a trust or estate.
Washing sale rules
The bill would amend Sec. 1091 to make commodities, foreign currencies, and crypto assets subject to laundering sale rules.
Income tax on net investments
The bill would amend Sec. 1411 to apply the tax to net investment income derived in the ordinary course of a trade or business for taxpayers with taxable income greater than $ 400,000 (single taxpayers), $ 500,000 (married taxpayers). filing jointly or surviving spouses) or $ 250,000 (married taxpayers filing separately).
Excess business losses
The bill would make the Sec. 461 limitation on excessive non-corporate taxpayer losses permanent.
High income surcharge
The bill would create a new Sec. 1A, which imposes a surcharge (in addition to any other income taxes applied) on high-income individuals, estates, and trusts. The tax on the surcharge would be equal to the sum of 5% of the taxpayer’s AGI amount in excess of $ 10 million ($ 5 million for married taxpayers filing separately; $ 200,000 for an estate or trust), plus the 3% of the taxpayer’s AGI amount in excess of $ 25 million ($ 12.5 million for married taxpayers filing separately; $ 500,000 for an estate or trust).
Green energy incentives
The bill covers a wide variety of new and existing green energy incentives, which it generally organizes as two-tier incentives, providing either a base fee or a bonus fee. The bonus rate is five times the base rate and would apply to projects that meet certain current salary and learning requirements.
The bill extends the production tax credit for the production of energy from renewable sources and the Sec. 48 investment tax credit for certain energy properties. The incentive for solar and wind energy under Sec. 48 is increased.
Taxpayers have the option of electing to be treated as if they had made a tax payment equal to the value of the credit for which they would otherwise be eligible under various energy credits, rather than choosing to roll over the credit.
The bill also provides several other tax incentives for green energy production, including a credit for nuclear power production and a credit for clean hydrogen production.
Individual taxpayers would be eligible for various green energy and energy efficiency incentives under the bill. The bill extends Sec. 25C Non-commercial Energy Property Credit to property brought into service before the end of 2031. It also modifies and extends the credit.
The bill would extend Sec. Credit 25D for energy-efficient residential properties through 2033 (it is currently scheduled to expire after 2023). It would be a refundable credit for the years after 2023. Qualified expenses on battery storage technology would be eligible for the credit. The second. The 45L credit for new energy efficient homes will run until 2031 and will be increased and modified.
The bill extends Sec. 48C Qualified Advanced Energy Property Credit through 2031 and provides a new investment tax credit worth up to 25% for advanced manufacturing facilities. The bill also creates a credit for the production of wafers, polysilicon solar cells and modules and wind blades, gondolas, towers and offshore wind foundations.
The bill also creates an emissions-based incentive for electricity generating facilities. Taxpayers can choose between a production tax credit under the new Sec. 45BB or an investment tax credit under the new Sec. 48F.
The bill also creates a technology-neutral tax credit for domestic clean fuel production.
Tax credits for electric vehicles
The bill provides for a refundable income tax credit of up to $ 8,500 for new qualifying plug-in electric motor vehicles. The credit would be available for qualified electric vehicles that cost up to $ 80,000 (for vans, SUVs, and trucks) or $ 55,000 (for other vehicles). The bill would also provide a credit of up to $ 7,500 for two- or three-wheel plug-in electric vehicles. The credit would be phased out for taxpayers with annual gross income greater than $ 500,000 (married filers filing jointly) or $ 250,000 (single filers). A smaller credit would be available toward the purchase of qualifying used electric vehicles. The invoice also provides a credit toward the purchase of certain new electric bikes.
The bill would provide a credit for any qualified commercial electric vehicle put into service by a taxpayer. The credit would equal up to 30% of the basis for a fully electric vehicle or 15% of the basis for a hybrid vehicle.
The bill also extends the credit for the purchase of a qualified fuel cell motor vehicle and the alternative fuel vehicle refueling property credit through 2031.
The bill removes the temporary suspension of the exclusion from qualified bicycle travel benefits and increases the maximum benefit from $ 20 per month to $ 81 per month.
Retirement plans
The bill prohibits additional contributions to traditional or Roth IRA during a fiscal year if the contributions would cause the total value of an individual’s IRA and defined contribution retirement accounts at the end of the previous fiscal year to exceed ( or exceed even more) $ 10 million. . The limitation would apply to people with income greater than $ 400,000 (single and married taxpayers filing separately), $ 425,000 (heads of household), or $ 450,000 (married taxpayers filing jointly).
If an individual’s combined defined contribution, traditional IRA, and Roth IRA account balances generally exceed $ 10 million at the end of a tax year and the individual meets these same income thresholds, a minimum distribution would be required for the next year.
These provisions would be effective for fiscal years beginning after December 31, 2028.
The bill prohibits all after-tax contributions from employees in qualified plans and after-tax IRA contributions from being converted to a Roth IRA regardless of income level, effective for distributions, transfers and contributions made after December 31 of 2021.
The bill also eliminates Roth conversions for both IRAs and employer-sponsored plans for single filers (or married filers filing separately) with taxable income greater than $ 400,000, married filers filing. a joint return with taxable income greater than $ 450,000 and heads of household with taxable income greater than $ 425,000 (all indexed for inflation). This provision applies to distributions, transfers, and contributions made in fiscal years beginning after December 31, 2031.
Home loans
The bill would increase the 9% home loan and the small state minimums under the low-income home loan for the years 2022-2025 and make other changes to the credit. It also creates a new neighborhood housing loan to encourage the rehabilitation of dilapidated housing in distressed neighborhoods. The new credit would be administered by the states, and the rehabilitated homes would have to be owner-occupied for investors to receive the credit.
The IRS
The bill would repeal Sec. 6751 (b) requirement for supervisory written approval of IRS penalties. The bill would also provide more funding for IRS enforcement, technology, and customer service.