BIDEN TAX REFORM

Individual:

1. Increases the top marginal individual income tax rate from 37% to 39.6%. MFJ taxable income over $450,000, HOH over $425,000, individuals over $400,000, MFS over $225,000, and to estates and trusts over $12,500. The amendments made by this section apply to taxable years beginning after December 31, 2021.

2. Capital gains rate increases to 25%.

3. Section 1411 expands the net investment income tax to cover net investment income derived in the ordinary course of a trade or business for taxpayers with greater than $400,000 in taxable income (single filer) or $500,000 (joint filer), as well as for trusts and estates. The provision clarifies that this tax is not assessed on wages on which FICA is already imposed. The amendments made by this section apply to taxable years beginning after December 31, 2021.

4. Imposes a tax equal to 3% of a taxpayer’s MAGI in excess of $5,000,000 (or in excess of $2,500,000 for a MFS). The amendments made by this section apply to taxable years beginning after December 31, 2021.

5. Prohibits further contributions to a Roth or traditional IRA for a taxable year if the total value of an individual’s IRA and defined contribution retirement accounts generally exceed $10 million as of the end of the prior taxable year. The limit on contributions would only apply to single taxpayers (or MFS) with taxable income over $400,000, MFJ with taxable income over $450,000, and HOH with taxable income over $425,000.

6. In order to close these so-called “back-door” Roth IRA strategies, the bill eliminates Roth conversions for both IRAs and employer-sponsored plans for single taxpayers (or MFS) with taxable income over $400,000, MFJ with taxable income over $450,000, and HOH with taxable income over $425,000. This provision applies to distributions, transfers, and contributions made in taxable years beginning after December 31, 2031.

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Company:

1. Replaces the flat corporate income tax with a graduated rate structure. 18% on the first $400,000 of income; 21% up to $5 million, and 26.5% on income above $5 million. The benefit of the graduated rate phases out for corporations making more than $10,000,000.

2. The provision amends section 199A by setting the maximum allowable deduction at $500,000 in the case of a joint return, $400,000 for an individual return, $250,000 for a married individual filing a separate return, and $10,000 for a trust or estate. The amendments made by this section apply to taxable years beginning after December 31, 2021.

3.  A 15% minimum tax on the financial statement (“book”) profits of corporations that report over $1 billion in profits to shareholders has been proposed by Senate Finance Committee. The proposal would be effective for tax years beginning after December 31, 2022.

Estate:

1.This provision terminates the temporary increase in the unified credit against estate and gift taxes, reverting the credit to its 2010 level of $5,000,000 per individual, indexed for inflation.