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Corporate Tax Changes Under Biden: What to Know

Corporate Tax Changes Under Biden: What to Know

In March 2021, the current administration and congress were able to enact the American Rescue Plan, the plan provides cash payments to individuals and included tax law changes benefitting lower-income individuals and families. The American Rescue Plan tax changes are temporary (expiring at the end of 2021) remedies targeted at those affected by the economic downturn caused by COVID-19.

They include: 

  • A child tax credit of $3,600 per child under age 6 and $3,000 per child ages 6 through 17 is fully refundable and payable in advance. It will revert for 2022 to $2,000 per child under age 17 unless extended by legislation.
  • A child and dependent care tax credit maximum credit for one individual is $4,000 and $8,000 for two or more qualifying individuals and is refundable for some taxpayers.
  • EITC extended to workers under age 25; and for 2021, individuals as young as age 19 are eligible. 
  • Premium reductions for ACA coverage for two years.

On the docket for enactment are other tax implication-filled plans such as The American Jobs Plan aims to achieve the following:

  • Create new unionized jobs and train American workers for future jobs 
  • Invest in innovation by revitalizing American manufacturing 
  • Create caregiving jobs and raise wages of home caregivers
  • Modernize homes, commercial buildings, schools, and federal buildings
  • Upgrade highways and national infrastructure
  • Update drinking water infrastructure and develop a new electrical grid 

These intended projects are planned to be funded by the Made in America Tax Plan that the presidential administration has also proposed. Currently, this tax plan is projected to bring in a total of approximately $2 trillion to cover the costs of the projects mentioned above.

The intention of this proposed legislation is to ensure that large corporations and wealthy individuals will pay a higher rate to contribute to the national funding. As currently proposed, this plan will be funded over the coming 15 years, particularly concentrated over the next eight years

The details of this proposed plan will implement substantial changes for many corporations across America. Additional details of the Made in America Tax Plan are:

  • Increased Corporate Tax Rate

The Made in America Tax Plan proposed an increased corporate tax rate to 28%. These rates were previously cut down to 21% in 2017 as part of the Tax Cuts and Jobs Act enacted that year. Note that these proposed rates are still lower than the rates experienced prior to their lowering in 2017.

  • Minimum Book Tax 

President Biden’s proposed updates also include the implementation of a 15% minimum book tax on firms with $100 million or more in net income. Overall, this change is targeted at corporations that have significant annual income but pay little to no taxes. 

  • Clean Energy Incentives 

President Biden’s plan mentioned both tax and non-tax incentives with relation to clean energy. While the details surrounding this aspect of his plan are still not entirely clear, it was noted that existing subsidies would be eliminated and not be expected to cause significant impacts on the price or security of energy for Americans. 

It is also mentioned that Biden’s tax plan would advance existing clean energy production by extending existing production and investment tax credits for the next 10 years. 

  • Increased IRS Enforcement

Lastly, President Biden’s proposed plan calls for a significant strengthening of IRS enforcement. He aims to reach this goal by increasing funding to IRS to increase audits of international corporations that are not meeting their tax contributions. 

In more recent news, Biden has claimed he expects that increasing IRS enforcement will bring in an additional $700 billion over the next decade. This result is expected should the administration obtain the $80 million budget from Congress.

While the administration’s proposed plans are just that, proposed, it should be noted what intended actions might mean for businesses in the near future. The likelihood that these plans will see further edits and adjustments from Congress before being approved is high.