By John KinsellaAs part of its budgetary process known as “reconciliation,” the House of Representatives has outlined a series of income tax proposals that could have a significant effect on banks and their customers. These include increases in the corporate tax rate to 26.5% for taxpayers with income over $5 million, the top individual rate to 39.6% for married taxpayers with income over $450,000 and the capital gains tax rate to 25% for taxpayers with income over $400,000.
In addition to the top individual tax rate hike, important changes could impact shareholders of banks that have elected S Corporation tax status, including a cap on the current 20% Section 199A deduction at $500,000 for married taxpayers and an expansion of the 3.8% net investment tax for owners who are active participants in the trade or business.
There is a laundry list of other changes in the proposals including enhancement to municipal finance, additional tax credits for housing, energy and community investment, as well as significant revisions in international taxation, to highlight a few.
Of particular importance to bank operations is a potential significant increase in required tax information reporting. The Biden administration has proposed that banks report annual gross inflows and outflows on all financial accounts flows that exceed $600. Amid the strong concerns that have been raised by customers and bankers on privacy, data security, and the ability of the IRS to store and use the massive amounts of new information, a significant and costly burden would be placed on customers and banks to operationalize this new requirement, both initially and on an ongoing basis.
ABA and a wide range of other trade associations have been working hard to have this proposal excluded from any final legislation. These efforts have been broad and included calling on bankers and customers to reach out to their congressional representatives (see below for ABA tools you can use).
Deliberations are continuing in Congress and the situation is very fluid as to agreement on what might be included in the legislation and related timing. In light of very narrow margins in both the House and Senate, it will be challenging to reach agreement. Importantly, all legislation must then be considered by the Senate and finalized before being sent to President Biden for his signature. There is still a long road to potential finalization. Stay tuned for much more to come.
Please contact John Kinsella for more information or to join ABA’s Taxation Committee.
Available tools include: