Tax Implications of Biden's Physical Infrastructure Bill and a Look Forward at Human Infrastructure
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- The Infrastructure Investment and Jobs Act mainly focused on substantial investment in roads, bridges, railways and broadband internet, and as we reported in August, there are no new income taxes contained in this law.
After months of anticipation and negotiations, most recently in the House of Representatives, President Joe Biden signed the $1.2 trillion Infrastructure Investment and Jobs Act into law on November 15. We previously reported on the bill's passage in the Senate in an August Alert. During the last two and a half months, the bill had been waiting as House leaders recruited the necessary votes.
Congress separated this physical infrastructure bill and the "human infrastructure" bill still being debated. The human infrastructure bill provisions are largely contained in the $1.75 trillion Build Back Better Act, which contains a number of social programs, such as universal pre-K, paid family leave and expanded health coverage. In order to pay for the expanded programs it offers, the Build Back Better Act will need to include significant tax changes that the Democrats will likely have to pass without any Republican support. The scope of these potential changes, both from a social program and tax revenue perspective, has been slimmed down or eliminated, largely due to Democratic infighting, though much remains in flux. Please watch for our Alerts as we monitor developments for any year-end planning strategies if the Build Back Better Act becomes law.
The Infrastructure Investment and Jobs Act mainly focused on substantial investment in roads, bridges, railways and broadband internet, and as we reported in August, there are no new income taxes contained in this law. The infrastructure act includes just two main tax provisions shown and briefly discussed below:
- A tax provision that expands the definition of "broker" for purposes of digital assets and imposes new reporting requirements on such brokers; and
- A tax provision that terminates the employee retention credit early.
This is not a new tax provision, but rather a change in reporting requirements designed to generate revenue, offset the new spending in the bill and address potential noncompliance in the area of cryptocurrency. For federal purposes, virtual currency is treated as property and general tax principles applicable to property transactions apply to transactions using virtual currency. However, Congress is aware that some taxpayers with virtual currency transactions may have reported incorrectly or failed to report income and pay the appropriate tax.
Under the Infrastructure Investment and Jobs Act, the definition of a broker is expanded to include any person who (for consideration) is responsible for regularly providing any service executing transfers of digital assets on behalf of another person. Any broker meeting this expanded definition is required to file an information return for the calendar year. This provision is effective for returns required to be filed and statements required to be furnished after December 31, 2023. We expect eventual guidance from the IRS, but this is broadly interpreted to mean that all transactions involving digital currency will be reported similarly to the sale of stock, with brokers required to monitor basis and holding period, while reporting sales on a Form 1099‑B.
Employee Retention Credit
As also foreshadowed in our August Alert, the Infrastructure Investment and Jobs Act eliminates the employee retention tax credit (ERTC) for most businesses a quarter early. The employee retention credit is a refundable credit designed to encourage businesses to keep workers on their payroll and support small businesses and nonprofits during the COVID-19 emergency.
The ERTC was originally enacted by the CARES Act and extended by the American Rescue Plan Act of 2021 until December 31, 2021. However, the infrastructure act repeals the extension to the fourth quarter of 2021. The credit is therefore retroactively ended to apply only through September 30, 2021. One exception to this early termination is if the employer is a "recovery startup business." A recovery startup business means any employer that began any trade or business on or after February 15, 2020, with average annual gross receipts of $1 million or less. Because of the retroactive termination of the ERTC, your payroll tax compliance (including tax deposits) may need to be reviewed to make sure that it conforms with these retroactive changes―especially if you retained payroll taxes in anticipation of receiving the ERTC based on post-September 30, 2021 payroll taxes.
Unless you are an individual taxpayer heavily invested in cryptocurrency or a business receiving the employee retention tax credit, you will likely not be directly impacted by the tax provisions in the new infrastructure law. However, here in the Tax Accounting Group, we are laser-focused on the bill still making its way through Congress. The Build Back Better Act could contain, depending on the final version, tax changes that would require consultation and action in a short window of time to experience full tax savings or reduce the tax increases. The tax landscape is dynamic and can change on the whims of one or two individuals in Congress. Stay tuned, stay flexible and stay in touch with us.
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