International provisions
- Changes to global intangible low-taxed income (GILTI), including increasing the effective tax rate to 15%, country-by-country/tested unit computation, and tested loss carryforwards, which would be effective for tax years beginning after Dec. 31, 2022
- Changes to foreign tax credits, including separate limitation calculations for each country, allocating only taxes and Section 250 deductions against tested income, increasing eligible tax for GILTI to 95% from 80%, eliminating carrybacks and allowing five-year carryforwards for GILTI for tax years beginning after Dec. 31, 2022
- Changes to foreign-derived intangible income, including increasing the effective tax rate to 15.8% and eliminating the loss limitation rule for tax years beginning after Dec. 31, 2022
- Changes to base erosion anti-abuse tax, including:
- Increasing the tax rate to 12.5% in 2023, 15% in 2024, and 18% in 2025 (rate increases are not scheduled to begin until 2025 under current law)
- Eliminating the 3% base erosion threshold in 2025
- Adding certain costs included in cost of goods sold and inventory to tainted payments
- Excluding payments that are subject to U.S. tax or an effective foreign tax rate greater than 15% for tax years beginning after 2021
- Reinstatement of Section 958(b)(4) (anti-downward attribution rule) effective after date of enactment and elimination of the one-month year-end deferral rule for controlled foreign corporations effective Nov. 30, 2022
Individual provisions
- Add a 5% surtax on individuals with adjusted gross income (AGI) of more than $10 million ($5 million for married individuals filing separately) and estates and trusts with AGI of more than $200,000, as well as a 3% surtax on individuals with AGI of more than $25 million ($12.5 million for married individuals filing separately) and estates and trusts with AGI of more than $500,000, which generally would be effective for tax years beginning after Dec. 31, 2021
- Expand the 3.8% net investment income tax to cover most trade or business income for tax years beginning after 2021
- Make permanent the limit on excess business losses under Section 461(l)
- Tighten the rules for certain high-balance individual retirement accounts effective for tax years beginning after Dec. 31, 2028
- Extend through 2031 a higher state and local tax deduction cap ($80,000 for married couples filing jointly)
Compensation and benefits provisions
- Tighten the 2017 law changes to Section 162(m) to address avoidance through services not as an employee or payments through a pass-through or other entity and apply new expanded aggregation rules effective for tax years beginning after Dec. 31, 2021
- End early, as of 2022 (instead of 2026), the suspension on the income exclusion for bicycle commuting reimbursements and significantly expand the type and amount of bicycle benefits
- End early, as of 2024 (instead of 2026), the expiration of the Section 45S paid family and medical leave income tax credit (to coincide with new paid family and medical leave requirements beginning in 2024)
- Include various retirement provisions similar to those in the Sept. 27 version of the bill targeted at high-income large account balance taxpayers and prohibit investments in domestic international sales corporations and foreign sales corporations
Other provisions
- Delay the effective date of Section 174 capitalization requirements until tax years beginning after 2025
- Modify the portfolio interest deduction effective on the date of enactment
- Reduces to 50% the qualified stock exclusion under Section 1202 for individuals with AGI of $400,000 or more effective for sales or exchanges after Sept. 13, 2021
- Increase funding for IRS enforcement
Looking ahead
The BBB Act now is in the Senate. If the Senate makes changes, the House will have to vote again on the revised legislation, which could leave taxpayers with a year-end scramble to understand the new law and determine how it affects them.
