November 4, 2021
House reconciliation manager's amendment includes tax changes
House Democratic leaders November 3 released a manager's amendment to the Build Back Better Act reconciliation bill (H.R. 5376) that includes modifications from the text released on October 28, including changes to the state and local tax deduction cap, the addition of four weeks of paid leave, rules relating to retirement plans, and drug pricing provisions. A Rules Committee markup to report a rule for debate on the bill is underway. It is possible the revised version of the bill could be voted on in the House this week, though a vote has not been scheduled. House leaders are signaling less of an inclination toward coordination with the Senate, where changes to any House-passed bill still appear likely.
Many provisions that diverge from the October 28 version are add-backs from the original language reported by the House Ways & Means Committee in September. On international tax, the manager's amendment does not appear to include new items from the October 28 text, though there are technical changes that could potentially be meaningful for some taxpayers. It is also the case that changes to energy provisions appear to be only technical in nature.
A new addition is the SALT deduction cap relief, which increases the cap to $72,500 ($36,250 in the case of an estate, trust, or married individual filing a separate return) and extends it at that amount from 2021 through 2031.
The add-back of retirement-related revenue provisions includes the Mega-IRA contribution limit provision to prohibit new contributions, defined not to include rollovers, to a Roth or traditional IRA if the total value of the individual's IRA and defined contribution accounts exceeds $10 million as of the last day of the previous year. It is effective for tax years beginning after December 31, 2028.
That is also the effective date of the provision that imposes new minimum distribution requirements on individuals whose combined Roth IRA, traditional IRA, and defined contribution plan accounts exceed $10 million and whose income exceeds $400,000. These individuals would be required to take a distribution of 50% of the amount by which their aggregate accounts exceed $10 million. For individuals whose aggregate account balances exceed $20 million, the individual would be required to withdraw the lesser of the amount needed to bring the aggregate balance down to $20 million or all funds in Roth accounts, IRAs or defined contribution plans. Effectively the provision would bar individuals with more than $20 million in retirement accounts from holding Roth funds. In a significant change from the Ways & Means Committee approved version of this provision, distributions from Roth accounts would be treated as qualified distributions, and not taxable.
The bill prohibits all employee after-tax contributions in qualified plans and after-tax IRA contributions from being converted to Roth regardless of income level, for distributions, transfers, and contributions made after December 31, 2021. It eliminates Roth conversions for both IRAs and employer-sponsored plans for those with taxable income over $400,000, for distributions, transfers, and contributions made in tax years beginning after December 31, 2031.
The "Prohibitions on Certain IRA Investments" provision from the Ways & Means Committee-approved version, the so-called "accredited investor" provision, has been dropped. Additionally, the acceleration of the 162(m) expansion under the American Rescue Plan Act of 2021 (ARPA) was not added back in.
The manager's amendment addresses Low-Income Housing Tax Credit provisions, which were left out of the October 28 version. Higher education provisions are also added back but the provision modifying the TCJA endowment excise tax was not included.
Other provisions from the original Ways & Means bill added back include those that address:
Materials related to the manager's amendment are available here.