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American Family Plan—Summary of Certain Key Tax Components

On Wednesday April 28, 2021, President Joseph R. Biden announced the American Families Plan, designed to expand access to education, child care, and health care, among other initiatives. The White House released a fact sheet outlining the plan, and Biden detailed the plan in an address to Congress. The American Families Plan would be funded by increasing tax enforcement on corporations and high-income taxpayers, enforcement of which would be supported by newly enhanced information reporting from financial institutions. The initiatives would also be funded by raising taxes on high-income taxpayers, including (i) increasing the top income tax rate to 39.6% from 37%, (ii) increasing the capital gains rate to 39.6% from 20% for those earning $1 million or more, (iii) eliminating a step-up in basis for gains in excess of $1 million, (iv) eliminating the carried interest loophole, (v) eliminating the special real estate tax break on gains greater than $500,000, (vi) extending the limitation that restricts excess business losses, (vii) and ensuring those making over $400,000 pay the same consistent 3.8% Medicare tax. These proposals are summarized in this Alert.

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Notice 2020-75: The SALT Cap Does Not Apply to Income Tax Payments Made by Partnerships and S Corporations (in contrast to actual payments made by a partner or S corporation shareholder)

Practices: Tax

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In Notice 2020-75, the Treasury/IRS announced that proposed regulations will be issued to provide certainty that income tax payments made by partnerships and S corporations (as opposed to flowing through the tax to, and with payment then made by, each actual partner or S corp shareholder) are deductible without being subject to the SALT cap that was imposed by the 2017 Tax Cuts and Jobs Act.

The Notice explicitly states that this is true regardless of (i) whether the state gives a full or partial tax credit to a corresponding partner or S corp shareholder and (ii) whether the state law to tax the actual partnership or S corporation applies mandatorily or by election.

The applicability date is for (i) income tax payments  made on or after November 9, 2020 and (ii) also those made before then but for a taxable year ending after December 31, 2017, as long as the corresponding state law was enacted before November 9, 2020.

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