global Tax Build Back Better Act Proposes Surcharge on High Income Individuals, Estates and Trusts November 18, 2021 The latest version of the Build Back Better Act imposes a 5% surcharge on modified adjusted gross income that exceeds $5 million for married individuals filing separately, and additional changes for estates and trusts. Find out what’s new here. Attention individuals…the House Rules Committee released a revised version of the Build Back Better Act on November 4th, which includes important changes to the taxation of high-income individuals, estates and trusts. Here’s what you should know. What is the Build Back Better Act? Check out our blog, Ways and Means Committee Issues List of Tax Provisions for Budget Bill for a summary of the potential changes coming for businesses and individuals in the $3.5 billion proposed package. What is the proposed surcharge? The latest version of the Build Back Better Act proposes imposing a 5% surcharge on MAGI exceeding: $5 million for married individuals filing separately$200,000 for estates and trusts$10 million for all other individuals Additionally, an extra 3% surcharge would be assessed on MAGI exceeding: $12.5 million for married filing separately $500,000 for estates and trusts$25 million for all other individuals When would these changes be effective? If the proposal goes through, the changes would be effective for taxable years beginning after December 31, 2021. Our observations The new surcharge would apply at much higher income levels for individuals than it would for estates and complex trusts. The MAGI of a complex trust or estate would include deductions for administrative costs (that would not have been incurred if the property were not held by the estate or trust) and the income distribution deduction. This should lead to deeper discussions for the purpose of the trust, and whether discretionary distributions are advisable to reduce the MAGI of the trusts below the threshold for assessing the proposed surcharge. Individuals close to the threshold will also need to consider whether there is a planning opportunity for deferring income or accelerating deductions. Stay tuned for updates on the status of the Build Back Better bill and our observations of any planning opportunities. Questions? Reach out to us. Also, don’t forget to register for our upcoming webinar, which will discuss the proposed tax and estate changes in the Build Back Better Act. 2021 Year-End Tax Planning Highlights for Businesses and Individuals: Strategize, Optimize, Maximize
