A Summary of Proposed 2024 Tax Provisions

By Anita Anand, JD

President Biden’s proposed budget for the government’s 2024 fiscal year has numerous provisions affecting tax bills for both individuals and businesses. Of course, it also aggressively attempts to cut the deficit by a sizable $3 trillion over the next 10 years.

The proposed budget is unlikely to pass as is due to a Republican majority in the House of Representatives but it still provides insight on the Democrats’ priorities. Going into what is likely a contentious election year in 2024, it also may be the formation of the President’s policy platform on which he’ll run for re-election.

So, what is in the provisions and what is left out or unmentioned? Let’s first start with what’s in it starting with individuals.

What’s Included: Individual Tax Provisions

The proposed budget includes tax provisions that would affect taxpayers of various income levels. In particular, it would make the following changes:

Tax rates

The proposal would reinstate the top individual tax rate of 39.6% for single filers earning more than $400,000 ($450,000 for married couples).

Net investment income tax (NIIT)

The NIIT on income over $400,000 would include all pass-through business income not otherwise covered by the NIIT or self-employment taxes. The budget also would increase both the additional Medicare tax rate and the NIIT rate by 1.2 percentage points. Thus, the Medicare tax rate would be 5% for earnings above $400,000, and the NIIT rate would be 5% for investment income above $400,000.

Capital gains tax

The highest capital gains rate now is 20% (or 23.8% if the NIIT applies). For individuals with taxable income of more than $1 million, the budget proposes that capital gains be taxed at ordinary rates, with 37% (or 40.8% with the NIIT) generally being the highest rate — or 39.6% (or 43.4% with the NIIT) if the top tax rate is raised.

Child tax credit (CTC)

This proposal would expand the CTC and make it fully refundable and payable in advance on a monthly basis. For eligible parents, the credit would increase from $2,000 to $3,000 for children age six and older and $3,600 for children under age six. The proposal also would establish a “presumptive eligibility” for determining when a taxpayer is eligible to claim a monthly specified child allowance or receive a monthly advance child payment. After a taxpayer establishes presumptive eligibility for a child, that child would be treated as a specified child of the taxpayer for each month during the period of the taxpayer’s presumptive eligibility.

Premium tax credits (PTCs)

The American Rescue Plan Act expanded eligibility for healthcare insurance subsidies to taxpayers with household incomes above 400% of the federal poverty line for 2021 and 2022. It also reduced the applicable contribution percentage (the percentage of household income a taxpayer must contribute toward a healthcare insurance premium). The Inflation Reduction Act (IRA) extended the expansion through 2025. The proposed budget would make this expansion permanent.

Cryptocurrency taxation

The proposal would amend the “wash-sale” rule to cover digital assets. The rule prohibits the deduction of a loss when the taxpayer acquires “substantially identical” investments within 30 days before or after the sale date.

Minimum wealth tax

The proposal would impose a minimum 25% tax on total income, generally inclusive of unrealized capital gains, for all taxpayers whose assets exceed liabilities by more than $100 million. According to the White House, the tax would apply to only the top 0.01% of taxpayers.

Gift and estate taxes

The proposal would close loopholes related to certain trust arrangements. Specifically, the changes would affect grantor-retained annuity trusts and charitable lead annuity trusts.

What’s Included: Business Tax Provisions

The proposed budget’s tax provisions target numerous issues of interest to businesses, including:

Corporate tax rates

The proposal would trim back the large cut made to the corporate tax rate in the Tax Cuts and Jobs Act (TCJA). It would hike the tax rate for C corporations from 21% to 28% — still significantly less than the pre-TCJA rate of 35%. In addition, the effective global intangible low-taxed income (GILTI) rate would increase to 14%. Overall, with other proposed changes, the effective GILTI rate would rise to 21%.

Global minimum tax

The proposal would repeal Base Erosion and Anti-Abuse Tax (BEAT) liability, replacing it with an “undertaxed profits rule.” In conjunction with the GILTI regime, the rule would ensure that income earned by a multinational company, whether parented in the United States or elsewhere, is subject to a minimum rate of taxation regardless of where the income is earned.

Stock buyback excise tax

The IRA created a 1% excise tax on the fair market value when corporations buy back their stock, with the goal of reducing the difference in the tax treatment of buybacks and dividends. The proposal would quadruple the tax to 4%.

Carried interest loophole

A “carried interest” is a hedge fund manager’s contractual right to a share of a partnership’s profits. Currently, it’s taxable at the capital gains rate if certain conditions are satisfied. The budget proposes to close this loophole.

Like-kind exchanges

Owners of certain appreciated real property can defer the taxable gain on the exchange of the property for real property of a “like-kind.” The proposal would allow the deferral of gain up to an aggregate amount of $500,000 for each taxpayer ($1 million for married couples filing a joint return) each year for like-kind exchanges. Under this proposal, any like-kind gains in excess of $500,000 (or $1 million for married couples) in a year would be recognized in the year the taxpayer transfers the real property.

Low-income housing tax credit

The budget proposes to expand and enhance the largest federal incentive for affordable housing construction and rehabilitation.

What’s NOT Included (or Mentioned):

With the above offering some specifics, there are significant expiring (many in 2025) provisions that are not addressed. So, which ones are not? Mostly, these provisions come from the temporary tax provisions in 2018’s Tax Cuts and Jobs Act (TCJA):

• The increased standard deduction.
• Reduced individual tax rates.
• Qualified business income deduction for pass-through businesses.
• Limits on the state and local tax deduction.

While the proposed budget offers insight into where the President’s thinking currently is, there will be much debate publicly and within the House and Senate chambers before anything is finalized. And, regarding the TCJA provisions left without mention, those too are on the radar to be addressed. Since they expire in 2025, it may not be immediately addressed but the clock is ticking.

We will continue to watch for these and other important changes and provide updates when we learn more.

© 2023

Anita Anand is a Brady Ware tax director and a licensed attorney specializing in providing technical international, federal, and state and local tax consulting for clients across numerous industries.