Guest Post: House Ways and Means Committee Approves Build Back Better Tax Increase and Tax Relief Proposals
On Wednesday, September 15, 2021, the House Ways and Means Committee approved tax increase and tax relief proposals that would increase tax rates for certain corporations, individuals and retirement plans.
House and Senate proposals are currently being considered under a fiscal year 2022 budget resolution to provide reconciliation for the Build Back Better Act, which includes approximately $3.5 trillion in spending and tax relief provisions.
Some of the key provisions in the House Ways and Means proposal affecting corporations, individuals and retirement plans include:
Corporate Tax Rate
The corporate tax rate is currently a flat 21%. The proposal would replace the current rate with a rate structure based on income, outlined as follows:
Businesses reporting up to $5 million in income:
o 18% tax rate on the first $400,000
o 21% tax rate on remaining income up to $5 million
Businesses reporting more than $5 million in income: 26.5% tax rate
Qualified Personal Service Corporations: 26.5% tax rate
This rate structure would phase out for businesses reporting over $10 million.
Individual Tax Rate
Under the proposal, the top marginal individual income tax rate would be increased to 39.6% effective after December 31, 2021 for the following taxpayers:
Married, filing jointly taxpayers with taxable income over $450,000
Heads of household with taxable income over $425,000
Single individuals with taxable income over $400,000
Married taxpayers who file separate returns, with taxable income over $225,000
Estates and trusts with taxable income over $12,500
IRA Contributions and Increased Required Minimum Distributions for Taxpayers with Large Aggregate Account Balances
Further contributions to either a Roth or a traditional IRA would be prohibited for a tax year if, at the end of the prior tax year, the total value of the IRA and defined contribution retirement accounts exceeded $10 million. This limit would apply based on taxable income (adjusted for inflation) as follows:
Single taxpayers, or those married filing separately, with taxable income over $400,000
Married taxpayers filing jointly with taxable income over $450,000
Heads of household with taxable income over $425,000
For those listed above, an increased minimum distribution would be required for taxpayers whose combined traditional IRA, Roth IRA and defined contribution retirement account balances exceeds $10 million at the end of a tax year. The increased required minimum distribution (RMD) would equal the excess of:
1. The sum of 100% of the “applicable Roth excess amount” plus 50% of the “excess aggregate vested retirement plan balance” reduced by the applicable Roth excess amount over, or
2. The sum of the RMD (determined without regard to this proposal) for all such plans
For taxpayers whose combined balance amount exceeds $20 million, the excess would be required to be distributed from Roth IRAs and other Roth designated accounts in defined contribution plans, up to the lesser of:
1. The amount necessary to bring the total balance in all accounts down to $20 million, or
2. The aggregate balance in the Roth IRAs and designated Roth accounts in defined contribution plans
Read more on the BSSF Blog at www.bssf.com/blog/ways-means-tax-proposal
Disclaimer: Information provided by Brown Schultz Sheridan & Fritz (BSSF) as part of this blog post is intended for reference and information only. As the information is designed solely to provide guidance, and is not intended to be a substitute for someone seeking personalized professional advice based on specific factual situations, responding to such inquiries does NOT create a professional relationship between BSSF and the reader and should not be interpreted as such.
Although BSSF has made every reasonable effort to ensure that the information provided is accurate, BSSF makes no warranties, expressed or implied, on the information provided. The reader accepts the information as is and assumes all responsibility for the use of such information.
About the Author
Randy L. Fackler, CPA, CEPA is a Principal and the Tax Director at Brown Schultz Sheridan & Fritz (BSSF) and is one of the key members of the Firm’s Tax Department. He received his Bachelor of Science degree from Shippensburg University and his Master of Science in Taxation from the American University.
As Tax Director and Principal at BSSF, Randy is responsible for managing tax consulting and compliance services for his clients as well as overseeing the tax department. He has over 30 years of experience providing tax and business advisory services to clients within numerous industries.
Additionally, Randy is an essential member of the BSSF Family-Owned and Closely Held Business Practice. As a Certified Exit Planning Advisor (CEPA), Randy helps his family-owned and closely held business clients with transition strategies, succession and exit planning, business valuations, strategic planning and more.
