Business Tax Revisions The budget plan suggests several updates that may impact businesses’ tax liabilities, many of which President Biden has previously supported. Key changes include:
Corporate tax rates: The proposal suggests raising the corporate tax rate for C corporations from the current 21% to 28%, still lower than the 35% rate that existed prior to the 2017 Tax Cuts and Jobs Act (TCJA). The global intangible low-taxed income (GILTI) rate would increase to 14%, with other proposed adjustments pushing it to 21%. Additionally, the corporate alternative minimum tax would rise from 15% to 21%.
Executive pay limitations: Biden also aims to expand the current cap on deducting executive compensation over $1 million in publicly traded C corporations to also include privately held ones. An aggregation rule would apply, treating members of a controlled group as one employer for determining affected executives.
Excess business loss (EBL) limits: Currently, noncorporate taxpayers can only use business losses to offset business-related income or gains, with an inflation-adjusted cap (set at $305,000 for individuals or $610,000 for joint filers in 2024). The new proposal would make this limit permanent and treat prior-year EBLs carried forward as current-year losses, rather than as net operating loss deductions.
Stock buyback tax: The Inflation Reduction Act (IRA) introduced a 1% excise tax on the value of stock buybacks. The new proposal would increase this tax to 4%, while also extending it to acquisitions of foreign corporations by certain affiliates.
Like-kind exchanges: Property owners can defer taxes on gains from exchanging real property for like-kind assets. Under the new proposal, the deferral would be limited to $500,000 annually for individuals and $1 million for joint filers. Any gains exceeding these amounts would be recognized in the year of the exchange. Other types of assets would no longer qualify for this deferral.
Individual Tax Revisions Biden remains committed to his promise of not raising taxes for individuals earning less than $400,000 annually, while he proposes changes for higher earners. Key proposals include:
Tax rates: The top marginal tax rate for individuals making over $400,000 ($450,000 for joint filers) would return to 39.6%, the rate in effect before the TCJA.
Net investment income tax (NIIT): The NIIT would be applied to all pass-through business income for those earning more than $400,000, as well as income not covered by self-employment tax. In addition, the rate for the NIIT and the additional Medicare tax on earnings above $400,000 would increase to 5%.
Capital gains taxes: Taxpayers with over $1 million in taxable income would see their capital gains taxed as regular income, rather than at the current maximum of 20%. Additionally, unrealized capital gains at death would be subject to taxation, with a $5 million exemption ($10 million for couples).
Child Tax Credit (CTC): The budget proposes to increase the CTC to $3,600 per child under six and $3,000 for other qualifying children, and extend the credit’s eligibility age to 17 through 2025. There would also be a provision for monthly advance payments and a concept of “presumptive eligibility.” The credit would be permanently refundable.
Premium tax credits (PTCs): The IRA’s enhanced health insurance subsidies for households earning more than 400% of the federal poverty line would become permanent, along with the reduction in required household income contribution for PTC eligibility.
Gift and estate taxes: Several loopholes related to gift and estate taxes would be closed. Notably, certain transfers would be subject to a new annual exclusion threshold, with taxable transfers starting at $50,000 per year, regardless of whether gifts to individual recipients are below the annual gift exclusion (which will be $18,000 per recipient in 2024).
