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September 20, 2021 ▫️ Tax Planning

House Ways & Means Committee Proposes Tax Increases
Congress has been working on a $3.5 trillion spending and tax package that Democrats and the White House hope to pass through the budget reconciliation process this fall.

To pay for the social and economic policies in the reconciliation package, including a mandate for small businesses to enroll employees in tax-deferred retirement accounts and childcare grants to states to expand access to childcare, the U.S. House Ways and Means Committee are proposing a series of tax increases and changes.

On Sept. 13, the committee released the rest of its tax proposals which include the following proposed provisions.

For Corporations

Increase the top rate to 26.5 percent from 21 percent for corporations with incomes of $5 million while reducing the rate to 18 percent for corporations with incomes less than $400,000.

The committee’s proposal would be a change from the current flat rate to a progressive corporate tax rate as follows:

  • $0 to $399,999 – 18 percent

  • $400,000 to $5 million – 21 percent

  • More than $5 million – 26.5 percent

For Individuals

Create a new 3 percent surtax on individuals with modified adjusted gross income exceeding $5 million ($2.5 million for a married individual filing separately).

Expand the Net Investment Income Tax (NIIT) to cover net investment income derived in the ordinary course of a trade or business for taxpayers with taxable income greater than $400,000 for single filers or $500,000 for joint filers, as well as for trusts and estates.

Essentially, this change would subject all earnings from pass-through businesses to either the 3.8 percent self-employment Medicare tax or the 3.8 percent NIIT, regardless of whether the income is from a passive or nonpassive activity.

Increase the top ordinary income tax rate to 46.4 percent (39.6 percent top individual tax bracket + 3.8 percent NIIT + 3 percent surtax).

The proposed top bracket would start at taxable income levels of $400,000 for single ($450,000 married filing joint). This is lower than under the White House’s plan, which would have the top rate kick in at $452,700 and $509,300, respectively (adjusted annually for inflation).

See the full proposed spending breakdown in this White House fact sheet.

Hilltop continues to monitor this tax legislation, which we expect will continue to advance through Congress this fall.

In the meantime, we encourage you contact us if you have questions on how the proposed changes could affect you or your business.


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