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Proposed Changes to Tax Provisions That Could Impact Some Individuals

On September 13, the House Ways and Means Committee issued a proposal outlining some increases and changes to current tax provisions. It has not been confirmed that these provisions will become law, however it’s important that individuals be prepared if they do.

Individual Income Tax

  • Increase in Individual Tax Rates to 39.6% (from 37%)
    • This will be applicable to married couples filing jointly with taxable income over $450,000; heads of household with taxable income over $425,000; unmarried individuals with taxable income over $400,000; married individuals filing separately with taxable income over $225,000; and estates and trusts with taxable income over $12,500.
    • This change would be effective for taxable years beginning after 12/31/2021.
  • Increase in Capital Gains Rates to 25% (from 20%)
    • This proposal affects individuals earning $400,000 or more.
    • This change would be effective as of 9/13/2021.
  • New High-Income Surcharge of 3%
    • This proposed change would impose a 3% tax on a taxpayer’s modified adjusted gross income in excess of $5 million (or in excess of $2.5 million for a married individual filing separately).
    • This would be effective for taxable years beginning after 12/31/21.
  • Expansion of Net Investment Income Tax
    • This would expand the Net Investment Income Tax (NIIT) to active business income for taxpayers with taxable income greater than $400,000 for single filers and $500,000 for joint filers.
    • Proposal to be effective after 12/31/2021.
  • Qualified Small Business Stock
    • This could potentially reduce the 75% and 100% exclusion rates for gains realized from certain qualified small business stock (QSBS) to 50% for trusts, estates, and taxpayers with adjusted gross income of $400,000 or more.
    • Proposal applies to sales and exchanges after 9/13/2021.

The House Ways and Means Committee has also included changes to Estate and Gift Tax, Grantor Trusts, and Retirement Accounts in their proposal.

These changes are not yet law – which would require passage in both the House and the Senate. It is important however to consider ways you can prepare for you finances if you anticipate being impacted by any of these adjustments. Our team is always ready to assist you and please reach out if you have any questions regarding possible changes to your tax situation.