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On September 13, 2021, the Biden Administration announced a proposal called the Build Back Better plan. It’s still in its early stages, but here are some of the changes you could see if it is put into action.

Taxes

Income Tax Rate Changes

The top marginal rate could increase to 39.6% for taxable income more than: 

•  $450,000 for those who file as married filing jointly 

• $225,000 for those who file as married filing separate 

• $425,000 for those who file as heads of households 

• $400,000 for those who file as single taxpayers  

• $12,500 for estates and trusts filings 

Capital Gains Rate

The capital gains rate could increase from 20% to 25% for taxpayers who fall in the new 39.6% bracket. 

The capital gain rate on carried interest investments held for more than three years could be prolonged to a five-year holding period. 

Tax Surcharge

An additional tax could be assessed against: 

• individuals with a modified adjusted gross income (AGI) of more than $5 million  

• estates and trusts with income exceeding $100,000 

Net Investment Income

The net investment income tax could be broadened to apply to passive investment income and active trade and business income. This could affect:  

• those who file as single taxpayers with income greater than $400,000  

• those who file as married filing jointly with income greater than $500,000+  

• Trusts that receive income from businesses  

Qualified Small Business Stock

Qualified Small Business Stock exclusions could now be limited to taxpayers whose AGI is less than $400,000.

Child Tax Credit

The COVID relief child tax credits could be extended to the end of the year 2025. The credits could remain refundable and be partially pre-paid to qualifying taxpayers.

SALT Deduction Cap

The current $10,000 limitation on the state and local tax deduction may be modified or removed for federal tax purposes.

Unified Tax Credit

The current unified tax credit against estate and gift taxes could drop from $12 million to $5 million. The scheduled date of that change is currently set for 2025, and the Build Back Better plan could change that date to as early as 2022.

Grantor Trusts

Grantor trusts could be included in a taxable estate if the descendent that receives the trust is deemed the owner.

Limits on IRA Funding

Roth IRA Conversions

Roth IRA conversions would no longer be allowed for taxpayers with taxable income of 

• $400,000 for those who file as single or married filing separate 

• $450,000 for those who file as married filing jointly 

• $425,000 for those who file as head of household 

The proposal could also prohibit taxpayers from rolling over after-tax contributions to qualified plans and after-tax IRA contributions to Roth IRAs regardless of taxable income.  

IRA Contribution Limit

Under this proposal, a taxpayer whose total IRA is valued at more than $10 million would not be allowed to make any Roth or traditional IRA contributions for the following year.

IRA Minimum Distributions

An additional minimum distribution requirement could be put into action. If passed, it could require any taxpayer with $10 million or more in either a traditional or Roth IRA to take a distribution that is 50% of the amount over $10 million if income is greater than $450,000.

Other Limitations

Under the Build Back Better plan, those who have certain investments in non-publicly traded companies held through their IRA could be required to move those investments out.

What Comes Next? 

While there is a long way to pass the legislation in its current form, we will closely monitor the situation to bring you the latest updates.  

Have Questions?  

Have questions about how these proposed changes could affect your unique tax situation? One of our experts is ready to help. Contact us.