The House of Representatives on Friday morning passed H.R. 5376, the Build Back Better Act, by a vote of 220–213. The bill encompasses a wide range of budget and spending provisions and has been the focus of protracted negotiations for the past several weeks. For more on the nontax provisions of the bill, see, “House Passes Build Back Better Act With Universal Paid Leave.”

The vote on the bill was held after the Congressional Budget Office (CBO) released its cost estimate for the bill. The CBO estimates the bill will cost almost $1.7 trillion and add $367 billion to the federal deficit over 10 years. Adding in $207 billion of nonscored revenue that is estimated to result from increased tax enforcement in the bill, the net total increase to the deficit would be $160 billion.

The bill contains a wide variety of tax provisions, designed to provide incentives to taxpayers and to raise revenue to pay for the spending in the bill. H.R. 5376 now goes to the Senate for consideration; its fate there cannot be predicted.

One nontax provision in the bill is the provision for four weeks of paid leave benefits for caregiving leave. These paid leave benefits would not be considered gross income to the recipient for tax purposes under a new Sec. 139J.

Among the many tax provisions in the bill (as found in House Rules Committee Print 117-18) are the following:

One year extension of expanded child tax credit; permanent extension of refundability

The changes to the child tax credit enacted by the American Rescue Plan Act (ARPA), P.L. 117-2, for 2021 would be extended through 2022. This would include the requirement that the IRS make advance payments of the credit throughout 2022. Taxpayers whose adjusted gross income (AGI) exceeds $150,000 for joint filers, $112,500 for heads of household, or $75,000 for other taxpayers, would not be eligible for advance payments.

The bill would extend the refundability of the child tax credit beyond 2022.

The bill would also implement new rules to avoid fraud. For payments of advance payment to taxpayers who file joint returns, one-half will be credited to each individual filing the joint return.

Extending expanded earned income tax credit

The bill would extend the changes to the earned income tax credit that were enacted by ARPA through 2022. The increase in the earned income and phaseout amounts would be indexed for inflation in 2022.

SALT deduction cap

The bill would increase the Sec. 164(b) limitation on the deduction for state and local taxes from $10,000 to $80,000 ($40,000 for married taxpayers filing separately and for trusts and estates) but would extend the limitation through 2031.

Expanded premium tax credit

The bill would increase the amounts for premium assistance in Sec. 36B through 2025. The bill would also extend through 2025 the rule that allows the premium tax credit to certain taxpayers whose household income exceeds 400% of the poverty line. The bill would also modify the employer-sponsored coverage affordability test in the premium tax credit through 2025.

The bill would exclude a portion of lump-sum Social Security benefit payments when determining household income for purposes of the credit. The bill would also exclude the first $3,500 of income of dependents who have not reached the age of 24.

Through 2025, the bill would also allow certain low-income employees who are offered employer-provided health coverage to claim the credit. The bill would also make permanent the Sec. 35 health coverage credit, which is currently scheduled to expire at the end of 2022.

15% minimum tax on profits of large corporations

The bill would impose a 15% minimum tax on the profits of corporations that report over $1 billion in profits to shareholders. Any corporation (other than an S corporation, regulated investment company, or real estate investment trust) that for any three-year period has average annual adjusted financial statement income (as defined in new Sec. 56A) over $1 billion and, in the case of corporations with foreign parents, has annual adjusted financial statement income in excess of $100 million, would pay a tax of 15% of its adjusted financial statement income for the year over the amount of its corporate AMT foreign tax credit.

1% surcharge on corporate stock buybacks

The bill would impose a tax equal to 1% of the fair market value of any stock of a corporation that the corporation repurchases during the year, effective for repurchases of stock after Dec. 31, 2021. The provision would apply to any domestic corporation the stock of which is traded on an established securities market.

Limitation on interest expense deduction

The bill would add a new Sec. 163(n) that limits the amount of net interest expense of certain domestic corporations (or foreign corporations engaged in a U.S. trade or business) that are members in an international financial reporting group. The provision limits the interest expense deduction to an “allowable percentage” of 110% of the domestic corporation’s net interest expense.

FDII and GILTI changes

The bill would reduce the applicable percentage in Sec. 250(a) for the foreign-derived intangible income (FDII) deduction from 37.5% to 24.8% and the applicable percentage for the global intangible low-taxed income (GILTI) deduction from 50% to 28.5%, resulting in an effective FDII rate of 15.8% and an effective GILTI rate of 15%. The bill would also allow the FDII deduction to be taken into account when determining a net operating loss deduction.

Sec. 951A would be amended to have the GILTI provisions apply on a country-by-country basis, based on controlled foreign corporation taxable units.

Foreign tax credit limitation

The bill would amend Sec. 904 to apply the foreign tax credit limitation on a country-by-country basis, by taxable unit. Taxable units would include the taxpayer corporation itself, each foreign corporation of which the taxpayer is a shareholder, interests held by the taxpayer in a passthrough entity, and any branch of the taxpayer. The bill would also repeal the carryback of the foreign tax credit. The foreign tax credit changes will apply to tax years beginning after Dec. 31, 2022.

Country-by-country minimum tax on foreign profits of US corporations

The bill would modify the Sec. 59A base-erosion and anti-abuse tax to gradually increase the applicable percentage from 10% to 12.5% in 2023, 15% in 2024, and 18% after 2024. Amounts would not be subject to the base-erosion and anti-abuse tax if they were subject to an effective rate of foreign tax of at least 15% (or 18% after 2024).

Small business stock and high-income taxpayers

The bill would amend Sec. 1202 to disallow the 75% and 100% exclusion of gain from the sale of stock if the taxpayer’s AGI is over $400,000 or if the taxpayer is a trust or estate.