Less than one week after unveiling a rewrite of the Build Back Better Act (BBB – H.R. 5376), Congressional leaders again rewrote the legislation on November 3, 2021. Here is a summary of the three bills that were rolled out recently:
- Build Back Better (version 1.0) – This bill passed the House Budget Committee on September 25, 2021, following the House Ways & Means Committee passing the tax measures in the BBB on September 15, 2021.
- Build Back Better (version 2.0) – This is the “framework” and legislative text of H.R. 5376 unveiled on October 28, 2021. This bill contained a number of changes from the BBB (version 1.0) including removal of the higher tax rates for individuals and corporations as well as the exclusion of estate tax changes.
- Build Back Better (version 3.0) – This was released by Congressional leaders on November 3, 2021. It makes various revisions to the BBB (version 2.0) unfurled last week and addresses some of the unresolved issues.
Caution is urged in reviewing this legislation. Make sure you are looking at the latest version of the BBB, too.
Now that we have our “BBBs” in order, it is important to understand what is in the BBB (version 3.0). Here are several of the latest changes:
- SALT. Congressional leaders stopped “pouring SALT in each other’s wounds” and seemed to finally reach an agreement on what to do about the $10,000 SALT limitation adopted with the TCJA. The agreement would increase the $10,000 limit to $72,500 for married taxpayers filing jointly and single taxpayers; and to $36,250 for taxpayers using married filing separately and trusts/estates. This hike in the SALT limitation would apply for the 2021 year and extend through 2031. This increase in the SALT deduction, if enacted, would provide tax savings in 2021 of over $20,000 for taxpayers in the top tax brackets.
- Contribution Limit for High-Income Taxpayers with Large IRAs. The new measure would preclude additional contributions to a Roth IRA or traditional IRA for the year, if the contributions cause the total value of an individual’s IRA and defined contribution accounts to exceed $10 million. This contribution limit only applies to taxpayers with income over $400,000 (single or married filing separately) or $450,000 (for a married taxpayer filing jointly). Applies beginning in 2029.
- Increased Required Minimum Distributions for High-Income Taxpayers with Large Retirement Account Balances. The provision applies to taxpayers with large IRA and retirement account balances totaling more than $10 million at the end of a taxable year. A minimum distribution of 50% of account balances greater than $10 million is required in the following year. This additional amount only applies if the taxpayer’s taxable income for the year exceeds $450,000 (married filing jointly). Further distribution rules apply with balances over $20 million. Applies beginning in 2029. Note that this item was in the BBB (version 1.0) but not part of the BBB (version 2.0).
- Roth IRAs. This provision prevents all employee after-tax contributions in qualified plans and after-tax IRA contributions from being converted to Roth IRAs regardless of taxpayer’s income. Applies in 2022.
In addition, BBB (version 3.0) would eliminate Roth IRA conversions for single taxpayers (or taxpayers married filing separately) with taxable income over $400,000 and married taxpayers filing jointly with taxable income over $450,000. Applies beginning in 2032. This was also brought back into the BBB (version 3.0) after being taken out of the BBB (version 2.0).
- Union Benefits. An above-the-line deduction of up to $250 for payment of union dues will be available beginning in 2022.
- Uniforms. Another $250 above-the-line deduction applies for employee uniforms. This provision allows up to $250 for employee uniforms or work clothing. Uniforms or work clothing must be required as a condition of employment and not suitable for everyday wear, according to the BBB (version 3.0) text. Starts in 2022.
- Expenses in Contingency Fee Cases. Stated by the BBB (version 3.0) text, this provision modifies current law expensing rules to allow plaintiffs’ attorneys to deduct out-of-pocket litigation costs in year they are incurred, rather than waiting until the conclusion of the litigation. Applies in tax years beginning after the year the law is enacted.
- Treatment of Certain Qualified Sound Recording Productions. This provision revises Section 181 to permit taxpayers to obtain current tax deductions for the cost of qualified sound recording productions not exceeding $150,000 in a taxable year.
- R&D Credit for Start-up Businesses. This provision doubles the current $250,000 limitation for the small business research payroll tax credit under Section 41. This expanded credit applies beginning in 2022.
Linked for your reference are the following:
- A Section-by-Section review of the latest BBB (version 3.0) that explains each of the provisions.
- A copy of the legislative text of H.R. 5376. This text is over 500 pages more than the BBB (version 2.0) released last week.
- A copy of the comparable changes in the BBB (version 2.0) to the BBB (version 3.0). It is a “red-lined version.”
- A Schedule from the Joint Committee on Taxation (JCT) in Congress on the tax impact of the BBB (version 3.0) in H.R. 5376.
What’s up next?
Congressional leaders hope to have some floor votes soon, perhaps later this week. It is still uncertain whether all members of the House and Senate (including Senators Manchin and Sinema) agree with the latest BBB (version 3.0). Perhaps version 3.0 will be the end of the line, but don’t be surprised if a version 4.0 or 5.0 eventually emerges.
Please contact your Sikich advisor with any questions. We will keep you posted.