Build Back Better Acct Proposed tax Law Changes

From CCH....

Congress and the Biden Administration are locked in ongoing negotiations over the budget reconciliation bill, the Build Back Better Act (BBBA), which, if enacted in its present form, would significantly impact planning for estates and high-net worth individuals. The final form and effective dates of these proposals are subject to change as the proposal makes its way through Congress and provisions and effective dates are altered to gain legislative approval or to achieve revenue goals.Proposed Corporate Rate Changes

Among the highlights of the proposal is change in the income tax rate applicable to corporations, with a shift back towards graduated rates. Currently, a 21 percent flat rate applies to corporations, regardless of income amounts. Under the proposal, the rate would increase to 26.5 percent on corporate income in excess of $5,000,000. Income between $400,000 and $5,000,000 would retain a 21 percent tax rate, while income below $400,000 would be taxed at 18 percent. A three percent surcharge would apply to incomes in excess of $10,000,000, up to surcharge tax of $287,000.

Proposed Individual Rate Changes

As long promised by Democratic lawmakers, as well as President Biden during his campaign, individuals would also see tax increases under the proposal.  But only those making in excess of $400,000 a year would see a change.  Under the proposal, the current 37 percent rate bracket would be increased to 39.6 percent (the top rate in effect prior to the Tax Cuts and Jobs Act), and would be expanded to begin at $400,000 (in the case of unmarried taxpayers). Currently, unmarried taxpayers are at least partially taxes at 35 percent for income over $400,000. The low point of the bracket is slightly increased for joint filers and heads of households. 

Income tax Surcharge

The BBBA would apply a three-percent tax on modified adjusted gross income of individuals, estates and trusts in excess of certain amounts.  Theis would eeffctively dribve the top rate to 42.6 prercent.

Capital Gains Rate Changes

The capital gain rates, which currently are set at the top rate of 20 percent for taxpayers in the highest ordinary income tax brackets, would be changed to align with the new proposed ordinary income tax brackets. Additionally, the 20 percent rate is proposed to increase to 25 percent.

Net Investment Income

The proposed legislation expands the scope of the net investmnet income (NII) tax of 3.8% to include "all business income", which would iinclude income derived from active participation in S corporations and LLCs and partnerships.  This rate of 3.8% would efftively drive the overall highest tax rate to a whopping 46.4%.    

Additional Changes

The proposal includes several other changes applicable to businesses, including the limitation of business interest expense and taxation of foreign income, as well as some changes to IRS funding and IRAs. Notable, no changes to the deduction of state and local taxes are included.