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On Sept. 13, 2021, the House Ways and Means Committee issued a draft bill containing proposed tax provisions of a larger budget reconciliation bill in which Democrats aim to pass in the coming weeks. The announcement came with a description provided by the Joint Committee on Taxation and detailed the anticipated official Democratic proposal of how to fund the $3.5 trillion Build Back Better Act (BBBA). While the 881-page draft bill contains many proposed changes, one thing is for sure: if the bill passes, taxes will increase for corporations and wealthy individuals.
Doeren Mayhew’s tax advisors outline the proposed tax changes to keep you in the know.
A notable provision of the House’s proposed bill for corporations is a change in the income tax rate back toward graduated rates. There is presently a 21% flat rate applying to corporations, no matter the amount of income. The proposal increases the rate to 26.5% on corporate income greater than $5 million. Corporations with income between $400,000 and $5 million would keep the 21% rate, while income less than $400,000 would have an 18% rate. Organizations with income greater than $10 million will receive a 3% surcharge, up to $287,000. These new rates would apply to a corporation’s income earned after Dec. 31, 2021.
The proposed plan also includes the limitation of business interest expense and the plan to tax foreign income, as well as updates to Internal Revenue Service (IRS) funding and individual retirement accounts (IRAs). However, there are no mentions of updates to state and local tax (SALT) deductions.
Democratic lawmakers and President Biden have long promised individuals making less than $400,000 a year would not see tax increases, and the proposed plan reinforces this. The current 37% top marginal individual rate bracket would revert to 39.6% (the amount before the Tax Cuts and Jobs Act) and the pool of the top brackets would be expanded by applying it to:
These changes would apply to taxable years beginning after Dec. 31, 2021.
The House’s draft bill raises the top capital gains tax rate to 25% (from 20%) and will be made effective after Sept. 13, 2021. High-income trusts, estates and individuals will also be subject to a 3% tax surcharge on certain income, including:
This week, the House will continue to mark up the legislation. Senate Democrats will soon begin to produce their own draft bill and will have to reconcile differences with the House before the bill is signed by President Biden. Doeren Mayhew will keep you posted as the proposed plan moves through the House. In the meantime, if you have concerns about the plan’s impact on your business or individual tax matters, contact us today.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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