Marcum 2021 Year-End Tax Guide

Employee Retention Tax Credit (ERTC): CCA extended the ERTC for the first two quarters of 2021 with changes that produce a potential benefit of $7,000 per employee, per quarter. While ARP extended the CCA ERTC rules for two additional quarters through December 31, 2021, the Bipartisan Infrastructure Bill, passed in early November, terminated the Employee Retention Credit for most employers for payments made in the last quarter of 2021. Affordable Care Act Premium Tax Credits: ARP increases the ACA marketplace premium subsidies at every income level and offered those with income more than four times the federal poverty level (FPL) the ability to get a subsidy. Limitation on Deduction of Excessive Employee Compensation: Under IRS Section 162(m), a compensation deduction is limited for compensation paid by a public company to its CEO, CFO, and three highest- paid employees. The American Rescue Plan Act (ARPA) expanded the employees covered to include the eight highest-compensated officers other than the CEO and CFO for tax years beginning after December 31, 2026. Student Loan Forgiveness: This was a focus of President Biden’s during the campaign. He promised $10,000 in student loan forgiveness per borrower, but this did not make it into the American Rescue Plan. Under usual tax rules, forgiveness of debt creates taxable income, unless certain exceptions apply. Under ARP, cancellation of federal student and parent loans are tax-free for the period 2021 through 2025. This provision will have greater impact if President Biden can get Congress to approve additional student loan forgiveness. BIPARTISAN INFRASTUCTURE BILL The Bipartisan Infrastructure Bill was passed in November 2021 and it contains some tax related provisions: • Termination of Employee Retention Tax Credit (ERTC) for the fourth quarter of 2021. Employers will not be able to utilize the ERTC for the final quarter of 2021. (An exception is provided for startup recovery businesses. This is discussed in greater detail below.) • Required information reporting with respect to digital assets: Effective for returns and statements issued after December 31, 2023, a “broker” (defined as any person who provides services “effectuating transfers of digital assets on behalf of another person”) will be subject to

additional reporting requirements for digital assets. This provision created a rather public disagreement between congressional members since it is unclear who is included in this rather broad definition of a “broker.” • Modification of pension smoothing rules: This change would allow employers to defer making current pension contributions. The expectation is that this would decrease current employer deductions, increase income subject to tax, and raise revenue. The House of Representatives passed the Build Back Better bill on November 19, 2021. This version reduces the spending portions of prior iterations and makes several changes to tax provisions needed to fund these costs. The discussion below reviews the tax changes found in the latest version of this legislation but will also review some of the concepts found in prior proposed legislation. It is unclear what will end up in final legislation. PROPOSED LEGISLATION Build Back Better Plan The Build Back Better Act does not propose any change to the corporate tax rate, based primarily on the objections voiced by Senator Sinema to such an increase. This would leave the corporate tax rate. The Biden Administration had originally proposed an increase in the top corporate tax rate to 28%. While higher than the current rate, this would have been significantly lower than the 35% maximum rate prior to the enactment of the Tax Cuts and Jobs Act. The Build Back Better Act would create a new alternative minimum tax (AMT) on certain corporations. This is intended to tax large corporations that pay nothing in corporate income taxes despite reporting large profits to investors. This new AMT would apply to around 200 American corporations. Certain credits, such as investments in research and development, clean energy, and affordable housing, would offset tax under this bill. This makes some question whether the revenue expected from this provision will ever be realized. (This AMT will not apply to S corporations, regulated investment companies, or real estate investment trusts). CORPORATE INCOME TAXES Corporate Tax Rate NEW CORPORATE ALTERNATIVE MINIMUM TAX

marcumllp.com | 5