What’s in the Senate Finance Committee’s Build Back Better Act?
By Emily Dabney, Esq.
On December 11th, the Senate Finance Committee released its text of the Build Back Better Act. While the text contains some provisions that are in line with the House’s text of the bill, there are deviations as well. The text contains both tax provisions and other legislative provisions related to, most notably, paid leave, health care, and the environment.
SALT Changes
The Tax Cuts and Jobs Act (TCJA) capped itemized deductions of state and local taxes under Sec. 164(b). The House’s text proposed an increase in the current deduction cap from $10,000 to $80,000 ($40,000 for married taxpayers filing separately). However, the Senate’s text does not contain any changes to the TCJA’s $10,000 cap.
Corporate Minimum Tax
Both the House and Senate texts include a 15% minimum tax on the profits of large corporations. Corporations with more than $1 billion in book income for the three-tax-year period ending with the tax year, would be subject to a 15% tax on book income for said tax year. Critics of this provision state that, due to the differences between book income and taxable income, this provision may cause confusion or abuse of the two income reporting schemes.
Tax on High-Income Individuals
Both the House and Senate texts impose an income threshold that restricts tax benefits and imposes new tax liabilities on income above certain amounts.
- Small Business Stock: The Senate’s text modifies Sec. 1202, which provides a gain exclusion for qualified small business stock held for more than five years, by disallowing 75% and 100% exclusions for taxpayers with income over $400,000, or for trusts or estates.
- Tax on Net Investment Income: The Senate’s text expands the Sec. 1411 net investment income subject to a surtax of 3.8% of certain high-income taxpayers to include income derived in the ordinary course of a trade or business. Here, high-income taxpayers include single filers with taxable income over $400,000 and married couples filing jointly with taxable income over $500,000.
- Surtax for high-income individuals, trusts, and estates: A new Code Sec. 1A would impose a 5% surtax on income in excess of $10 million for individuals, which is reduced to income in excess of $5 million for married taxpayers filing separately. There would be an additional 3% surtax on income in excess of $25 million for individuals, which is reduced to income in excess of $12.5 million for married taxpayers filing separately. With regard to trusts and estates, there would be a 5% surtax on income in excess of $200,000 and a 3% surtax on income in excess of $500,000.
On December 20th, Senator Joe Manchin (D., W.Va.) expressed his discontent with the Build Back Better Act, leaving many to wonder whether Democrats will have the numbers they need in the Senate in order to pass the bill.
If you have any questions regarding this Act or any other estate or tax matter, please email us at info@hoffmanestatelaw.com or call us at 404-255-7400.
