Most tax preparers (and clients) are aware of the pending Build Back Better Act, which contains several tax provisions. With Sen. Joe Manchin’s announcement saying he will not vote for the bill, it is uncertain if a revised bill is on the horizon, and if so, what changes will be made to the existing bill.
On Nov. 19, 2021, the House passed the Build Back Better (BBB) Act and sent it to the Senate for consideration. The bill includes new social spending programs, expanded programs related to health care and housing, a massive expansion of green energy incentives, expanded tax credits to help middle and lower-income taxpayers, and an increase in the limitation of the state and local tax deduction. The bill also includes tax increases on high-income taxpayers and changes to corporate and international taxation.
On Dec. 11, 2021, the Senate Finance Committee released its version of the BBB. This version is fairly similar to the House bill with some minor modifications.
On Dec. 20, 2021, Senate Majority Leader Charles Schumer said Democrats will not give up on the BBB in the new year. In a “Dear Colleague” letter, it was mentioned the Senate will consider the BBB very early in the new year and votes will keep happening until something gets done.
With the bill currently on a temporary break, it’s still helpful to understand what’s in the House and Senate versions of the bill (first introduced in September 2021) to help answer your client’s concerns.
|Child Tax Credit (CTC)||Extends the 2021 expansion of the CTC and advance credit payments through 2022; the refundability of the CTC is also extended beyond 2022.||Same as House|
|Earned Income Tax Credit (EIC)||Extends 2021 changes through 2022; in 2022, the increase in the EIC and phaseout amounts would be indexed for inflation.||Same as House|
|High-Income Taxpayers||Small business stock (§1202): Currently there is a federal capital gain exclusion for the sale of stock of qualified small businesses if held for more than five years. §1202 would be modified for taxpayers with adjusted gross income (AGI) greater than $400,000 or for estates or trusts by disallowing the 75% and 100% exclusions.||Same as House|
|High-Income Taxpayers||Net investment income tax (NIIT): Subjects income derived in the ordinary course of a trade or business to NIIT for taxpayers with taxable income over $400,000 for those filing single, and $500,000 for those filing married filing jointly.||Same as House|
|High-Income Taxpayers||New code section: Instead of increasing income tax rates, there would be a new, two-stage surcharge on modified AGI (MAGI) of individuals, estates and trusts. §1A, a new code section, would impose a tax on MAGI over certain amounts: (1.) 5% for individuals (MFJ, S, HOH) with MAGI over $10 million, $5 million for MFS, and $200,000 for estates or trusts (2.) 3% of MAGI over $25 million for individuals (MFJ, S, HOH), $12.5 million for MFS, and $500,000 for estates or trusts||Same as House|
|State and Local Taxes (SALT) Deduction||Increases the SALT deduction from $10,000 to $80,000 ($40,000 for MFS, and trusts and estates); extends the limitation through 2031.||There is a placeholder for compromise on the SALT deduction as senators are undecided as to which taxpayers should benefit from a higher SALT deduction.|
|Expanded Premium Tax Credit (PTC)||Increases the amounts for premium assistance; extends the allowance of the PTC through 2025 for certain taxpayers whose household income exceeds 400% of the poverty line; excludes a portion of a lump-sum Social Security payment when determining household income for the PTC; excludes the first $3,500 of income of dependents who have not reached age 24.||Same as House|
|Corporate Alternative Minimum Tax (AMT)||Imposes a 15% minimum tax on the profits of corporations that report over $1 billion in profits to shareholders. Any corporation that, for any three-year period, has average annual adjusted financial statement income over $1 billion and, in the case of corporations with foreign parents, has annual adjusted financial statement income in excess of $100 million, would pay a tax of 15% of its adjusted financial statement income for the year over the amount of its corporate AMT foreign tax credit for the tax year. S corporations, regulated investment companies, and real estate investment trusts are excluded. New §56A would define average annual adjusted financial statement income.||Same as the House except there is a change in the corporate profits minimum tax language to create a carveout for pensions.|
|International||Several changes to international and foreign-related code provisions.||Several provisions would affect international business transactions and entity structures.|
|Green Energy Incentives||Several new or extended production and investment credits and depreciation allowances.||Several new or extended production and investment credits and depreciation allowances.|
This summary is not all inclusive and the above items are subject to change. There are other items present in the bill not listed above, including a modification to the treatment of certain partnership losses, a limitation on retirement contributions for wealthier taxpayers with large balances in their account(s), an increase in minimum required distribution amounts from retirement accounts for wealthier taxpayer with large balances and changes to the tax treatment of rollovers to Roth IRAs.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.