At the end of May, the Biden Administration released a 114-page explanation of the president’s 2022 Revenue Proposals, including a host of proposed tax changes affecting individuals and corporations.
For the first time since the Obama Administration’s fiscal year 2017 Budget, Biden’s 2022 Budget includes a Green Book with detailed proposals for changes to the federal tax law.
The $6 trillion proposed budget focuses on infrastructure, clean energy, and research and development and projects $4.1 trillion in revenue for FY 2022
Key Points for Corporate Taxes
- Increase the federal income tax rate on C corporations from 21% to 28%, effective for taxable years beginning after 2021 (with a phase-in rule for taxpayers that have a non-calendar taxable year).
- Impose a 15% minimum tax on worldwide pre-tax book income for corporations whose book income exceeds $2 billion annually.
- Provide a 10% tax credit as an incentive for locating jobs and business activity in the United States and removing tax deductions for expenses incurred in connection with moving jobs overseas.
- Subject all trade or business income of high-income taxpayers (earned income exceeding $400,000) to the 3.8 percent Medicare tax (either through the net investment income tax or the SECA tax) applicable to taxable years beginning on or after January 1, 2022.
Key Points for Individual Taxes
- Increase the top individual income tax rate from 37% to 39.6% for people with taxable income of more than $452,700 and married couples filing jointly with income over $509,300. (The top rate is slated to increase after 2025 even if Congress doesn’t pass Biden’s proposal.)
- Tax individuals’ long-term capital gains and qualified dividends at ordinary income tax rates for individuals whose adjusted gross income exceeds $1 million ($500,000 for married filing separately), indexed for inflation after 2022.
- Treat transfers of appreciated property upon death or by gift with unrealized capital gains appreciation in excess of $1 million as realization events, with exclusions for donations and certain tangible personal property and deferral of gain for family-owned and operated businesses.
- Tax carried interests as ordinary income instead of capital gains.
- Repeal deferral of gain from like-kind exchanges completed in tax years beginning after December 31, 2021, when greater than $500,000.
- Make permanent the current limitation on excess business losses of noncorporate taxpayers.
- Rationalize net investment income and Self-Employment Contributions Act (SECA) taxes for high-income taxpayers with certain income related to pass-through entities.
Considering the significant changes proposed to both corporate and individual taxes, it may be helpful to create forecasts reflecting various tax and economic scenarios with your tax advisor. For example, an increased corporate income tax rate may incentivize corporations to accelerate income into the 2021 calendar year and defer deductions until a later calendar year. However, there are often many changes from proposals to final legislation; it’s important to act with caution and flexibility.
We are available to discuss how Biden’s proposed Fiscal Year 2022 Budget Plan may impact your Accounting, Bookkeeping, and/or Business Tax Planning.
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