Share Article

What’s Passed, What’s Proposed, What’s Important to Know

With the extended 2020 tax filing deadlines upon us, conversations around proposed 2021 tax legislation are returning to the forefront. As many expected, President Biden is targeting tax reform as aggressively as President Trump did in 2017.

So, let’s begin with what we know and transition into what has been proposed.

The Senate recently passed the Infrastructure Investment and Jobs Act, a $1.2 trillion infrastructure package and a $3.5 trillion budget reconciliation plan which would adequately fund all of President Biden’s major programs. The most significant tax items included in the Act are the termination of the Employee Retention Credit at the end of the third quarter (instead of at the end of calendar year 2021) and stronger tax enforcement on cryptocurrency transactions.

Well, that wasn’t very much that’s known, was it? I guess the real fun is in talking about what could happen! Up next are the proposed changes to tax policy across a variety of areas. The focus of the proposals are clear and synonymous with President Biden’s campaign from the start: increase taxation on high-income taxpayers and corporations while expanding credits for the working class.

But with everything that I’m about to cover, it’s important to caveat the rest of the article with this statement: It is all still proposed legislation and is subject to change or elimination.

On September 13, 2021, the House Ways and Means Committee published an official release of the tax provisions that are currently being considered as the Democrats attempt to fully reconcile the budget. The proposed laws are broken down between corporate and international taxation, individual taxation and retirement plan modifications.

Corporate and International Taxation

Corporate tax reform begins with the introduction of a graduated rate structure to replace the current 21 percent flat rate. The first $400,000 of income would be taxed at 18 percent, 21 percent from $400,001 to $5 million, and 26.5 percent for income exceeding $5 million. The benefit of the graduated rates phases out for corporations making more than $10 million. This is slated to be effective for taxable years after December 31, 2021.

The 75 percent and 100 percent Section 1202 special exclusion rates for qualified small business stock would no longer exist for taxpayers with adjusted gross income of $400,000 or higher. However, the 50 percent exclusion would still be available. This is proposed to be effective as of September 13, 2021.

To help balance the increased corporate tax rates, the proposal also includes the expansion of the Low-Income Housing Tax Credit, makes permanent the New Markets Tax Credit, and establishes a new $2 billion tax credit – the Neighborhood Homes Investment Credit – among other changes.

The provisions also encompass international tax law changes that would:

  • Limit the interest deduction available to specified domestic corporations based on the individual company’s ratio of total earnings as compared to the international financial reporting group.
  • Reduce the Section 250 deduction, which functions as a tax neutralization for domestic corporations when sourcing intangible foreign income, for a global minimum tax inclusion based on foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI).
  • <