Tax Provisions in the “Build Back Better Act:” The House Ways and Means Committee’s Legislative Recommendations
Congressional research reportSep 28, 2021
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Tax Provisions in the “Build Back Better Act:”
The House Ways and Means Committee’s
Legislative Recommendations
September 28, 2021
Congressional Research Service
https://crsreports.congress.gov
R46923
Tax Provisions in the “Build Back Better Act"
Contents
Tables
Table 1. Subtitle B: Retirement ....................................................................................................... 3
Table 2. Subtitle F: Infrastructure Finance and Community Development ..................................... 5
Table 3. Subtitle G: Green Energy................................................................................................. 13
Table 4. Subtitle H: Social Safety Net ........................................................................................... 28
Table 5. Subtitle I: Responsibly Funding our Priorities ................................................................ 45
Table 6. Subtitle J: Drug Pricing ................................................................................................... 63
Table 7. Estimated Budgetary Effects of Tax Provisions in Subtitle F “Infrastructure
Financing and Community Development” of the “Build Back Better Act” ............................... 65
Table 8. Estimated Budgetary Effects of Tax Provisions in Subtitle G “Green Energy” of
the “Build Back Better Act” ....................................................................................................... 68
Table 9. Estimated Budgetary Effects of Tax Provisions in Subtitle H “Social Safety Net”
of the “Build Back Better Act” ................................................................................................... 71
Table 10. Estimated Budgetary Effects of Tax Provisions in Subtitle I “Responsibly
Funding our Priorities” of the “Build Back Better Act” ............................................................. 73
Table 11. Estimated Budgetary Effects of Tax Provisions in Subtitle J “Drug Pricing” of
the “Build Back Better Act” ....................................................................................................... 81
Table 12. Summary Estimated Budgetary Effects of Tax Provisions in the “Build Back
Better Act,” by Subtitle .............................................................................................................. 81
Contacts
Author Information........................................................................................................................ 83
Tax Provisions in the “Build Back Better Act"
n September 14-15, 2021, the House Ways and Means Committee marked up and
approved legislative recommendations for the budget reconciliation legislation, also
known as the “Build Back Better Act.”1 These recommendations were provided pursuant
to the reconciliation instructions included in S.Con.Res. 14, the Concurrent Budget Resolution for
FY2022.2 Subtitles B, F, G, H, I, and J of the Title XIII Build Back Better Act contain tax
provisions, and are hereby identified as the “tax provisions in the Build Back Better Act,”
pursuant to the reconciliation instructions provided in S.Con.Res. 14, the Concurrent Budget
Resolution for FY2022.3
O
This report summarizes the tax provisions in the Build Back Better Act, including
modifications to individual income taxes levied on high-income individuals that
would increase revenues, including
an increase in the top individual marginal tax rate to 39.6% for tax years
before 2026;
modifications to the taxes on long-term capital gains and qualified dividends,
including an increase in the top tax rate to 25%;
the application of the net investment income tax to trade or business income
for certain filers;
making permanent limitations on excess business losses of noncorporate
taxpayers; and
establishing a surcharge on high-income individuals, trusts, and estates;
an increase in the corporate income tax rate to 26.5%;
modifications to the treatment of international taxes that would generally increase
revenues, including changes to
the deduction for foreign-derived intangible income;
foreign tax credit limitations; and
the tax on global intangible low-taxed income;
a temporary extension of and modifications to the enhancements made to the
child tax credit in the American Rescue Plan Act of 2021 (ARPA; P.L. 117-2),
with a permanent extension of full refundability beginning in 2026;
a permanent extension of enhancements to the child and dependent care tax credit
and earned income tax credit in the American Rescue Plan Act of 2021 (ARPA;
P.L. 117-2); and
modifications to the tax treatment of the energy sector that would generally
reduce revenues; including
extension and modification of the credit for electricity produced from certain
renewable resources;
1 Legislative text for the Build Back Better Act is available at
https://docs.house.gov/meetings/BU/BU00/20210925/114090/BILLS-117pih-BuildBackBetterAct.pdf.
2 For more information on the FY2022 budget resolution, see CRS Report R46893, S.Con.Res. 14: The Budget
Resolution for FY2022, by Megan S. Lynch.
3 Legislative text and staff summaries for Subtitles F, G, H, I, and J can be found at
https://waysandmeans.house.gov/media-center/press-releases/chairman-neal-announces-additional-days-markup-buildback-better-act. Text for Subtitle B is available at https://waysandmeans.house.gov/media-center/pressreleases/chairman-neal-announces-markup-build-back-better-act.
Congressional Research Service
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Tax Provisions in the “Build Back Better Act"
extension and modification of the energy credit; and
extension of excise tax credits for alternative fuels, biodiesel, and renewable
diesel.
References to relevant CRS reports are included where applicable. A series of tables in this report
summarize the tax provisions in the Build Back Better Act and provide links to CRS resources
containing background or additional information.
Table 1 summarizes the provisions included in Subtitle B;
Table 2 discusses provisions included in Subtitle F;
Table 3 describes provisions included in Subtitle G;
Table 4 summarizes provisions included in Subtitle H;
Table 5 discusses provisions included in Subtitle I; and
Table 6 describes provisions included in Subtitle J of the proposal.
The effective date for most of the proposed tax provisions would be after December 31,
2021. This is the case unless otherwise noted in the description of the provision.
Additionally, provisions would be permanent changes unless otherwise noted.
The Joint Committee on Taxation (JCT) released technical descriptions for all subtitles; revenue
estimates for Subtitles F, G, H, I, and J (see Table 7 through Table 11); and estimated
distributional effects for the tax provisions.4 Table 12 summarizes the overall revenue effects of
the tax provisions in the Build Back Better Act.
4 These documents can be found at https://www.jct.gov/publications/.
Congressional Research Service
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Tax Provisions in the “Build Back Better Act"
Table 1. Subtitle B: Retirement
Section Title
Description
CRS Resources
Part 1—Automatic Contribution Plans and Arrangements
Tax Imposed on
Employers Failing
to Maintain
Automatic
Contribution Plan
or Arrangement
Deferral-Only
Arrangements
Increase in Credit
Limitation for
Small Employer
Pension Plan
Startup Costs
Including for
Automatic
Contribution Plans
or Arrangements
This provision would impose an excise tax on
employers of $10 per participant per day for deferred
contribution retirement plans (e.g., 401(k) plans) that
do not have an automatic enrollment. In automatic
enrollment, the employee participates in a plan unless
he or she makes an election not to participate. The tax
would not apply to employers with five or fewer
employees and would exclude government plans and
church plans. It would not apply to employers in
existence less than two years.
This provision would apply beginning in 2023.
A Section 401(k) plan (one form of a defined
contribution retirement plan) is required to satisfy a
nondiscrimination test to ensure a broad range of
workers (and not just highly compensated workers)
participate in the plan. The nondiscrimination test is
deemed satisfied if the employer contributes to the
plan, as specified, and notice requirements are met.
This provision would create a new defined contribution
(i.e., 401(k)) plan that involves only employee
contributions (no employer contributions) and could be
deemed as satisfying the nondiscrimination test. To
qualify the plan would need to have automatic
enrollment (i.e., an employee is automatically enrolled
in the plan and must make an election not to
participate). The contributions would be limited to the
Individual Retirement Account (IRA) limits (currently
$6,000 per year with a catch-up contribution of $1,000
per year for individuals 50 and over). The plan would
need to satisfy notice requirements.
This provision would apply beginning in 2023.
For background, see
CRS Report R46441, Saving
for Retirement: Household
Decisionmaking and Policy
Options, by Cheryl R.
Cooper and Zhe Li.
CRS Report R43439, Worker
Participation in EmployerSponsored Pensions: Data in
Brief, by John J. Topoleski
and Elizabeth A. Myers.
CRS Insight IN11721, Data
on Retirement Contributions to
Defined Contribution (DC)
Plans, by John J. Topoleski
and Elizabeth A. Myers.
For background, see
CRS Report R43439, Worker
Participation in EmployerSponsored Pensions: Data in
Brief, by John J. Topoleski
and Elizabeth A. Myers.
CRS Insight IN11721, Data
on Retirement Contributions to
Defined Contribution (DC)
Plans, by John J. Topoleski
and Elizabeth A. Myers.
Under current law, small employers with no more than
100 employees earning $5,000 or more are eligible for
a start-up credit for retirement plans (excluding
individual retirement accounts). The credit is equal to
50% of start-up costs for up to three years, limited to
the greater of (1) $500; or (2) the lesser of $250 for
each non-highly compensated employee or a flat
$5,000.
This provision would increase the credit to 100% for
employers with no more than 25 employees earning
$5,000 or more (with no change in the dollar limits).
The credit would be available for up to five years. The
employer credit would not be available for the deferralonly 401(k) described above and would only be allowed
for plans with automatic enrollment.
Congressional Research Service
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Tax Provisions in the “Build Back Better Act"
Section Title
Credit for Certain
Small Employer
Automatic
Retirement
Arrangement
Description
CRS Resources
This provision would provide a $500 credit per
employer for the first four years for small employer
individual retirement accounts and deferral-only plans
with automatic enrollment. Eligible employers would be
those with no more than 100 employees earning
$5,000 or more who did not maintain a qualified plan in
the previous three years.
Part 2—Saver’s Match
Matching
Payments for
Elective Deferral
and IRA
Contributions by
Certain Individuals
Current law allows a saver’s credit for up to 50% of the
first $2,000 of contributions to an IRA or employersponsored retirement plan. The credit rate declines
with adjusted gross income: 50% for income up to
$39,500, 20% for income between $39,501 and
$43,000, and 10% for income from $43,001 to $66,000.
Head of household returns have limits of 75% of these
levels, and single returns have limits of 50%. As with
most nonrefundable credits, taxpayers with little or no
income tax liability might not receive the full benefit (or
any benefit) from the credit.
This provision would add a refundable credit (i.e., that
is not limited by income tax liability) of up to $500 per
taxpayer. The credit would equal 50% of the first
$1,000 of qualifying retirement contributions. This 50%
credit rate would phase out for married taxpayers filing
jointly for income between $50,000 and $70,000, with
phaseout rates of 75% of those amounts for head of
household returns and 50% for single returns.
Individuals qualifying for a credit of less than $100
would receive $100. The credit would be paid directly
to the individual’s retirement account and would
function as a form of matching contribution.
The provision would direct the Secretary of the
Treasury to make payments to each territory for the
total cost of providing the refundable saver’s credit to
their territorial residents.
This provision would apply beginning with 2025.
Deadline to Fund
IRA with Tax
Refund
Taxpayers would be able to elect on their return to
have all or part of their tax refunds contributed to an
individual retirement account with the amount counting
as a contribution for that tax year. This rule would
apply to returns timely filed. This provision would apply
beginning with 2023.
For background, see
CRS In Focus IF11159, The
Retirement Savings
Contribution Credit, by Molly
F. Sherlock.
Source: CRS based on Subtitle B, Budget Reconciliation Legislative Recommendations Relating to Retirement.
Note: Provisions are effective in 2022 unless otherwise noted. The changes that would be made by the
provision are permanent, unless otherwise noted. “Section” citations refer to the section within the Internal
Revenue Code (IRC), 26 U.S.C., unless otherwise noted.
Congressional Research Service
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Tax Provisions in the “Build Back Better Act"
Table 2. Subtitle F: Infrastructure Finance and Community Development
Section Title
Description
CRS Resources
Part 1—Infrastructure Financing
Subpart A—Bond Financing
Credit to Issuer
for Certain
Infrastructure
Bonds
This provision would reinstate federal authority to
issue tax credit bonds (TCBs) and permanently
establish a TCB for certain infrastructure activities
beginning in tax year 2022. (TCBs provide bondholders
with a tax credit or issuers a direct payment in lieu of a
federal income tax exemption.) Eligible activities include
capital expenditures, operations or maintenance related
to capital expenditures, or public purchases or leasing
of rail corridor that meet the public purpose
qualifications specified in Section 141.
The tax credit available would equal the bond’s annual
interest payment multiplied by a rate of
(a) 35% for bonds issued in tax years 2022 through
2024;
(b) 32% for bonds issued in tax year 2025;
(c) 30% for bonds issued in tax year 2026; and
(d) 28% for bonds issued in tax year 2027 and all
subsequent years.
Authority to issue TCBs was repealed by P.L. 115-97
(commonly referred to as the “Tax Cuts and Jobs Act”
or TCJA), though TCBs issued prior to 2018 may still
be active. Past TCBs included Build America Bonds,
which were established by the American Recovery and
Reinvestment Act (ARRA; P.L. 111-5). Build America
Bonds provided a 35% tax credit available to public
purpose bonds issued in 2009 and 2010.
For background, see
Advance Refunding
Bonds
This provision would allow the interest income from
advance refunding bonds for certain activities to be
exempt from federal income taxation. Activities that
qualify either meet (a) the public purpose qualifications
specified in Section 141, or (b) the qualified 501(c)(3)
private activity bond criteria specified in Section 145 to
be exempt from federal income taxation. Bonds
originally issued after 1985 would not be eligible for the
exemption if they had previously been advance
refunded.
Refunding bonds are bonds that are issued to replace
existing (outstanding) bonds previously issued for a
given purpose, typically to take advantage of more
favorable borrowing terms. Advance refunding
describes cases where the existing bond and refunding
bond are both outstanding for a period of longer than
90 days.
The TCJA (P.L. 115-97) eliminated the ability to issue
federally tax-exempt advance refunding bonds.
For background, see
Permanent
Modification of
Small Issuer
Exception to TaxExempt Interest
This provision would expand the definition of a
qualified small issuer financial institution, as defined by
Section 265(b)(3), to include issuers who reasonably
anticipate issuing no more than $30 million (increased
from $10 million) in tax-exempt obligations in tax year
For background, see
Congressional Research Service
CRS Report R40523, Tax
Credit Bonds: Overview and
Analysis, by Grant A.
Driessen.
CRS Insight IN11079,
Advance Refunding Bonds and
P.L. 115-97, by Grant A.
Driessen.
CRS Report RL31457,
Private Activity Bonds: An
Introduction, by Steven
5
Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
Expense
Allocation Rules
for Financial
Institutions
2021. The small issuer obligation limit would be subject
to inflation-related increases in tax years after 2021.
Qualified small issuer financial institutions are excepted
from the general rule disallowing deductions for
interest expenses related to tax-exempt issuances
provided in Section 265.
The proposal would also permanently reclassify
qualified 501(c)(3) bonds so that they would be treated
as issued by exempt organizations for the deduction
rules provided in Section 265. ARRA previously
provided for identical treatment of qualified 501(c)(3)
bonds issued in 2009 and 2010.
Maguire and Joseph S.
Hughes.
Modifications to
Qualified Small
Issue Bonds
This provision would expand the definition of qualified
small issue bonds to include facilities that produce
intangible property and functionally related facilities. It
would also expand the small loan limitation to $30
million in tax year 2022 (with increases indexed to
inflation in future years) in cases where the aggregate
amount of related capital expenditures (including those
financed with tax-exempt bond proceeds) made over a
six-year period would not be expected to exceed that
amount.
Previously ARRA expanded the definition of small issue
bonds to include producers of tangible and intangible
property for bonds issued in 2009 and 2010.
For background, see
Expansion of
Certain
Exceptions to the
Private Activity
Bond Rules for
First-Time
Farmers
This provision would increase the first-time farmer
expenditures exception to qualified private activity
bond land use restriction from $450,000 to $552,500
for tax year 2021, with increases indexed to inflation in
future years.
For background, see
Certain Water
and Sewer Facility
Bonds Exempt
from Volume Cap
on Private Activity
Bonds
This provision would remove certain qualified exempt
facility bonds used to provide facilities for the furnishing
of water or sewage facilities (as defined in Section 142)
from the annual volume cap on private activity bonds
established in Section 146.
For background, see
Exempt Facility
Bonds for ZeroEmission Vehicle
Infrastructure
This provision would add a category of qualified
exempt facility (private activity) bonds (as specified in
Section 142) to include certain bonds financing certain
facilities that would charge or fuel zero-emission
vehicles.
For background, see
Application of
Davis-Bacon Act
Requirements with
Respect to Certain
Exempt-Facility
Bonds
This provision would require issuers of qualified
exempt facility bonds, a category of qualified private
activity bonds, to pay project workers at least locally
prevailing wages plus fringe benefits, consistent with the
Davis-Bacon Act, as amended.
Congressional Research Service
CRS Report RL31457,
Private Activity Bonds: An
Introduction, by Steven
Maguire and Joseph S.
Hughes.
CRS Report RL31457,
Private Activity Bonds: An
Introduction, by Steven
Maguire and Joseph S.
Hughes.
CRS Report RL31457,
Private Activity Bonds: An
Introduction, by Steven
Maguire and Joseph S.
Hughes.
CRS Report RL31457,
Private Activity Bonds: An
Introduction, by Steven
Maguire and Joseph S.
Hughes.
CRS Report R46864,
Alternative Fuels and Vehicles:
Legislative Proposals, by
Melissa N. Diaz.
For background, see
CRS Report RL31457,
Private Activity Bonds: An
Introduction, by Steven
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Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
Maguire and Joseph S.
Hughes.
CRS Report R41469, DavisBacon Prevailing Wages and
State Revolving Loan Programs
Under the Clean Water Act
and the Safe Drinking Water
Act.
CRS In Focus IF11927,
Federally Funded Construction
and the Payment of Locally
Prevailing Wages, by David H.
Bradley and Jon O.
Shimabukuro.
Subtitle B—Other Provisions Related to Infrastructure Financing
Credit for
Operations and
Maintenance Costs
of GovernmentOwned Broadband
This provision would create a 30% credit that state,
local, and tribal governments could claim for the
operations and maintenance costs of qualified
government-owned broadband systems. Expenses
eligible for the credit would be capped at $400 per new
subscriber per year within a low-income community.
The credit rate would be reduced to 26% in 2027 and
24% in 2028, before expiring in 2029.
Part 2—New Markets Tax Credit
Permanent
Extension of New
Markets Tax
Credit
This provision would permanently extend the New
Markets Tax Credit (NMTC) with allocation amounts
of $5 billion per year, indexed for inflation beginning in
2024. For 2022 and 2023, there would be additional
allocations of $2 billion and $1 billion, respectively.
For background, see
CRS Report RL34402, New
Markets Tax Credit: An
Introduction, by Donald J.
Marples and Sean Lowry.
Part 3—Rehabilitation Tax Credit
Determination of
Credit Percentage
Under current law, the rehabilitation tax credit for
historic structures is equal to 20% of qualified
rehabilitation expenditures. This provision would set
the tax credit percentage according to the taxable year
in which qualified rehabilitation expenditures were
incurred. Specifically, the credit percentage would be
20% for expenditures incurred before 2020; 30% for
expenditures incurred in 2020 through 2025; 26% for
expenditures incurred in 2026; 23% for expenditures
incurred in 2027; and 20% for expenditures incurred
after 2027.
This provision would apply to property placed in
service after March 31, 2021.
For background, see
Increase in the
Rehabilitation
Credit for Certain
Small Projects
This provision would increase the rehabilitation tax
credit from 20% to 30% for certain smaller projects. A
small project would be a project with qualified
rehabilitation expenditures that do not exceed $3.75
million. No more than $2.5 million in qualified
rehabilitation expenditures would qualify for the
increased credit.
For background, see
Congressional Research Service
CRS Committee Print
CP10004, Tax Expenditures:
Compendium of Background
Material on Individual
Provisions — A Committee
Print Prepared for the Senate
Committee on the Budget,
2020, by Jane G. Gravelle et
al. (pp. 363-368).
CRS Committee Print
CP10004, Tax Expenditures:
Compendium of Background
Material on Individual
Provisions — A Committee
Print Prepared for the Senate
Committee on the Budget,
2020, by Jane G. Gravelle et
al. (pp. 363-368).
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Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
Modification of
Definition of
Substantially
Rehabilitated
Under current law, a property must be “substantially
rehabilitated” to qualify for the rehabilitation tax credit.
A property is substantially rehabilitated if qualified
rehabilitation expenditures made within a 24-month
period (60-month in certain cases) exceed the greater
of 100% of the adjusted basis of such building, or
$5,000. This provision would reduce the 100% adjusted
basis threshold to 50% (the $5,000 threshold would
remain).
This provision would apply to 24-month and 60-month
periods ending after December 31, 2021.
For background, see
Elimination of
Rehabilitation
Credit Basis
Adjustment
This provision would eliminate the requirement that
the basis of the property be reduced by the amount of
the rehabilitation credit.
For background, see
Modification
Regarding Certain
Tax-Exempt Use
Property
Under current law, expenditures incurred in the
rehabilitation of a property (or portion of) expected to
be leased to a tax-exempt entity do not qualify for the
tax credit. This proposal would, among other changes,
modify the definition of tax-exempt use to exclude
nonresidential property leased to a tax-exempt entity
under a disqualified lease (as defined under Section
168(h)), except in cases where the tax-exempt entity is
a government entity.
For background, see
Qualification of
Rehabilitation
Expenditures for
Public School
Buildings for
Rehabilitation
Credit
This provision would allow the rehabilitation tax credit
to be used to rehabilitate public school buildings that
were operated as a qualified public educational facility
(as defined in Section 142(k)(1)) at any time during the
five-year period ending on the date of such
rehabilitation and which continued to operate as a
qualified public educational facility.
The Department of the Treasury would be required to
report to Congress certain data pertaining to the
effects of this proposal within five years of enactment.
For background, see
CRS Committee Print
CP10004, Tax Expenditures:
Compendium of Background
Material on Individual
Provisions — A Committee
Print Prepared for the Senate
Committee on the Budget,
2020, by Jane G. Gravelle et
al. (pp. 363-368).
CRS Committee Print
CP10004, Tax Expenditures:
Compendium of Background
Material on Individual
Provisions — A Committee
Print Prepared for the Senate
Committee on the Budget,
2020, by Jane G. Gravelle et
al. (pp. 363-368).
CRS Committee Print
CP10004, Tax Expenditures:
Compendium of Background
Material on Individual
Provisions — A Committee
Print Prepared for the Senate
Committee on the Budget,
2020, by Jane G. Gravelle et
al. (pp. 363-368).
CRS Committee Print
CP10004, Tax Expenditures:
Compendium of Background
Material on Individual
Provisions — A Committee
Print Prepared for the Senate
Committee on the Budget,
2020, by Jane G. Gravelle et
al. (pp. 363-368).
Part 4—Disaster and Resiliency
Exclusion of
Amounts Received
from State-Based
Catastrophe Loss
Mitigation
Programs
Current law excludes qualified disaster relief and
qualified disaster mitigation payments from gross
income (Section 139). Starting in 2021, this provision
would allow qualified catastrophe mitigation payments
made by state or local government programs to be
excluded from gross income. Qualified catastrophe
mitigation payments are amounts received by
individuals to make improvements to the individual’s
residence that would reduce the damage that would be
done to the residence by a windstorm, earthquake, or
wildfire. Taxpayers receiving these payments would not
Congressional Research Service
For background, see
CRS Report R45864, Tax
Policy and Disaster Recovery,
by Molly F. Sherlock and
Jennifer Teefy.
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Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
be required to adjust their basis in property for which
payment is received.
Repeal of
Temporary
Limitation on
Personal Casualty
Losses
The TCJA (P.L. 115-97) temporarily limited, from 2018
through 2025, personal casualty losses to those
attributable to a federally declared disaster. This
provision would retroactively repeal this limit, allowing
a deduction for any casualty loss, not just disasterrelated losses, after 2017.
This provision would direct the Treasury Secretary to
issue regulations or guidance (consistent with Revenue
Procedure 2017-60, as modified) to provide relief to
certain homeowners whose personal residences were
affected by deteriorating concrete foundations caused
by the presence of the mineral pyrrhotite.
For background, see
Credit for
Qualified Wildfire
Mitigation
Expenditures
This provision would create a tax credit for 30% of
qualified wildfire mitigation expenditures made after the
date of enactment. Qualified wildfire mitigation
expenditures would be specified wildfire mitigation
expenditures made under a state wildfire mitigation
program that requires wildfire mitigation expenditures
be paid by the taxpayer and the state, for property
owned or leased by the taxpayer. The credit amount
would be reduced below 30% if the taxpayer’s
percentage of the wildfire mitigation expenditure (as
opposed to the state’s share) were to fall below 30%.
For business expenditures, the credit would be part of
the general business credit. For nonbusiness
expenditures, the credit would be a nonrefundable
individual income tax credit. If basis of property
includes qualified wildfire mitigation expenditures, the
property’s basis would be reduced by the amount of
any tax credits claimed.
For background, see
CRS Report R45864, Tax
Policy and Disaster Recovery,
by Molly F. Sherlock and
Jennifer Teefy.
CRS In Focus IF10244,
Wildfire Statistics, by Katie
Hoover and Laura A.
Hanson.
CRS In Focus IF10732,
Federal Assistance for Wildfire
Response and Recovery, by
Katie Hoover.
Part 5—Housing
Subpart A—Low-Income Housing Tax Credit
Increase in State
Allocations
Tax-Exempt Bond
Financing
Requirement
This provision would increase state low-income
housing credit allocation authority for calendar years
2022 through 2028. States would receive $3.22 per
person in 2022, with a small population state allocation
of $3,711,575; $3.70 per person in 2023, with a small
population state allocation of $4,269,471; $4.25 per
person in 2024, with a small population state allocation
of $4,901,620; and $4.88 per person in 2025, with a
small population state allocation of $5,632,880.
The allocation amounts for calendar years 2026, 2027,
and 2028 would be the 2025 allocation amount,
adjusted for inflation.
For background, see
This provision would reduce the 50% tax-exempt bond
financing requirement to 25% for bond obligations
issued in calendar years 2022 through 2028. Credits
awarded to projects where the bond financing
threshold is met do not reduce a state’s annual housing
credit allocation authority.
For background, see
Congressional Research Service
CRS Report RS22389, An
Introduction to the Low-Income
Housing Tax Credit, by Mark
P. Keightley.
CRS In Focus IF11335, The
Low-Income Housing Tax
Credit: Policy Issues, by Mark
P. Keightley.
CRS Report RS22389, An
Introduction to the Low-Income
Housing Tax Credit, by Mark
P. Keightley.
CRS In Focus IF11335, The
Low-Income Housing Tax
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Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
Credit: Policy Issues, by Mark
P. Keightley.
Buildings
Designated to
Serve Extremely
Low-Income
Households
Inclusion of Rural
Areas as Difficult
Development
Areas
Repeal of Qualified
Contract Option
Modification and
Clarification of
Rights Relating to
Building Purchase
This provision would require that at least 10% of a
state’s annual low-income housing credit allocation
authority be set-aside for projects that serve extremely
low-income households. The set-aside would apply to
projects where at least 20% of the units are rentrestricted and occupied by households whose income
does not exceed the greater of 30% of area median
income, or 100% of the federal poverty line.
Projects requiring an increase in credits to be financially
feasible would receive a 50% basis boost. A state could
not award more than 15% of its credit authority to
such projects, and, if such a project utilizes tax-exempt
bond financing (and meets the bond financing
threshold), a state could not award more than 10% of
its private activity bond authority.
This provision would apply to allocations made after
December 31, 2021, and before January 1, 2032.
For background, see
This provision would modify the definition of difficult
development areas (DDAs) to include “rural areas.”
Projects in DDAs are eligible for a 30% basis boost. A
rural area would be defined as any nonmetropolitan
area, or any rural area as defined in Section 520 of the
Housing Act of 1949. Section 42 of the IRC, which
applies to the LIHTC program, defines a
nonmetropolitan area as any county (or portion
thereof) which is not within a metropolitan statistical
area.
For background, see
This provision would repeal the qualified contract
option, and thus limit the ability of a property owner to
exit the low-income housing tax credit (LIHTC)
program after the first 15 years. The qualified contract
option allows a property owner to sell a LIHTC
property after 15 years. To exercise this option, a
property owner must request that the state housing
credit authority locate a buyer who will purchase the
property and keep it in the program for another 15
years. The purchase price is determined by statute. If
the housing credit authority cannot locate a qualified
buyer, the affordability restrictions on the property are
phased out over three years.
This provision would apply to buildings that received a
credit allocation before January 1, 2022, or, in the case
of properties utilizing tax-exempt bonds, that received
a determination that the building was eligible to receive
tax credits.
For background, see
Under current law, a property may exit the lowincome housing tax credit program after 15 years if a
right of first refusal option is exercised whereby the
holder of the right (typically, a nonprofit organization
who helped develop the property) purchases the
property. There appears to be a lack of clarity under
current law over whether a third-party offer to
purchase the property is a necessary prerequisite to
the authority to exercise the right of first refusal. This
For background, see
Congressional Research Service
CRS Report RS22389, An
Introduction to the Low-Income
Housing Tax Credit, by Mark
P. Keightley.
CRS In Focus IF11335, The
Low-Income Housing Tax
Credit: Policy Issues, by Mark
P. Keightley.
CRS Report RS22389, An
Introduction to the Low-Income
Housing Tax Credit, by Mark
P. Keightley.
CRS In Focus IF11335, The
Low-Income Housing Tax
Credit: Policy Issues, by Mark
P. Keightley.
CRS Report RS22389, An
Introduction to the Low-Income
Housing Tax Credit, by Mark
P. Keightley.
CRS In Focus IF11335, The
Low-Income Housing Tax
Credit: Policy Issues, by Mark
P. Keightley.
CRS Report RS22389, An
Introduction to the Low-Income
Housing Tax Credit, by Mark
P. Keightley.
CRS In Focus IF11335, The
Low-Income Housing Tax
10
Tax Provisions in the “Build Back Better Act"
Section Title
Increase in Credit
for Bond-Financed
Projects
Designated by
Housing Credit
Agency
Description
CRS Resources
provision would clarify that a third party offer is not
needed by changing the right of first refusal to a
purchase option. Among other changes, the provision
would also clarify that establishing a qualified purchase
option would not disallow any of the federal tax
benefits of the low-income housing tax credit.
Credit: Policy Issues, by Mark
P. Keightley.
This provision would give state low-income housing
credit authorities the discretion to provide a 30% basis
boost to properties utilizing tax-exempt bond financing
if deemed necessary for financial feasibility.
This provision would apply to properties determined to
need a basis boost if such determination was made
before January 1, 2029.
For background, see
CRS Report RS22389, An
Introduction to the Low-Income
Housing Tax Credit, by Mark
P. Keightley.
CRS In Focus IF11335, The
Low-Income Housing Tax
Credit: Policy Issues, by Mark
P. Keightley.
Subpart B—Neighborhood Homes Investment Act
Neighborhood
Homes Credit
This provision would provide new federal tax credits to
offset the cost of constructing or rehabilitating owneroccupied homes. The credits would be awarded to
project sponsors (e.g., developers), which would either
use the credits directly to offset development and
rehabilitation costs or sell the credits to investors to
raise capital for home construction. Each state would
be allowed to annually award an amount of credits
equal to the greater of $6 multiplied by its population,
or $8 million. Annual allocation authority would be
adjusted for inflation. The credit amount would be
limited to no more than 35% of the lesser of qualified
development costs, or 80% of the national median sales
price for new homes as determined by the most recent
census data. Credits would be restricted to properties
with occupants whose income did not exceed 140% of
an area’s or state’s median income.
For background, see
CRS In Focus IF11335, The
Low-Income Housing Tax
Credit: Policy Issues, by Mark
P. Keightley.
Part 6—Investment in Tribal Infrastructure
Treatment of
Indian Tribes as
States with
Respect to Bond
Issuance
This provision would modify the treatment of Indian
tribes so that they are generally treated as states for
the purposes of issuing qualified private activity bonds.
This provision would direct the Secretary of the
Treasury to establish a national bond volume cap based
on tribal population data for qualifying bonds issued in
tribal areas.
For background, see
New Markets Tax
Credit for Tribal
Statistical Areas
This provision would create a permanent New Markets
Tax Credit (NMTC) allocation for low-income tribal
areas and for projects that serve or employ tribal
members. The annual allocation amount would be $175
million per year and would be adjusted for inflation
beginning in 2024.
For background, see
Inclusion of Indian
Areas as Difficult
Development
Areas for
Purposes of
Certain Buildings
This provision would modify the definition of difficult
development areas (DDAs) for purposes of the lowincome housing tax credit to include “Indian areas.”
Projects in DDAs would be eligible for a 30% basis
boost. An Indian area would be any Indian area as
defined in Section 4(11) of the Native American
For background, see
Congressional Research Service
CRS Report RL31457,
Private Activity Bonds: An
Introduction, by Steven
Maguire and Joseph S.
Hughes.
CRS Report RL34402, New
Markets Tax Credit: An
Introduction, by Donald J.
Marples and Sean Lowry.
CRS Report RS22389, An
Introduction to the Low-Income
Housing Tax Credit, by Mark
P. Keightley.
11
Tax Provisions in the “Build Back Better Act"
Section Title
Description
Housing Assistance and Self Determination Act of
1996.
If an area were to be a DDA solely because it is an
Indian area, then a project would not be treated as
being located in a DDA unless it were assisted or
financed under the Native American Housing
Assistance and Self Determination Act of 1996, or the
project sponsor were an Indian tribe, or wholly owned
or controlled by an Indian tribe or a tribally designated
housing entity.
This provision would apply to buildings placed in
service after December 31, 2021.
CRS Resources
CRS In Focus IF11335, The
Low-Income Housing Tax
Credit: Policy Issues, by Mark
P. Keightley.
Part 7—Investments in the Territories
Possessions
Economic Activity
Credit
This provision would create a new tax credit for
certain domestic corporations actively conducting
business in specified possessions. For these
corporations, the credit amount would be equal to 20%
of wage and benefit expenses in the possessions. The
amount of creditable wages and benefits would be
capped at $50,000 per full time equivalent employee
per year.
Additional New
Markets Tax
Credit Allocations
for the Territories
This provision would create a permanent New Markets
Tax Credit allocation for low-income communities in
U.S. territories. The annual allocation amount would be
$100 million per year and would be adjusted for
inflation beginning in 2024. 80% of the allocation would
be directed toward projects in Puerto Rico, and the
remaining 20% would be directed toward the other
U.S. territories.
For background, see
CRS Report RL34402, New
Markets Tax Credit: An
Introduction, by Donald J.
Marples and Sean Lowry.
Source: CRS based on Subtitle F, Budget Reconciliation Legislative Recommendations Relating to Infrastructure
Financing and Community Development.
Note: Provisions are effective in 2022 unless otherwise noted. The changes that would be made by the
provision are permanent, unless otherwise noted. “Section” citations refer to the section within the Internal
Revenue Code (IRC), 26 U.S.C., unless otherwise noted.
Congressional Research Service
12
Tax Provisions in the “Build Back Better Act"
Table 3. Subtitle G: Green Energy
Section Title
Description
CRS Resources
Part 1—Renewable Electricity and Reducing Carbon Emissions
Extension and
Modification of
Credit for
Electricity
Produced from
Certain
Renewable
Resources
Extension and
Modification of
Energy Credit
Current law provides a production tax credit (PTC), at
a rate of 2.5 cents or 1.3 cents per kilowatt hour
(kWh) depending on the technology used, for the first
10 years of production at qualifying renewable
electricity production facilities that begin construction
before 2022. The credit amount is adjusted for
inflation. This provision would extend the PTC for
wind, biomass, geothermal, solar (which previously
expired at the end of 2005), landfill gas, trash, qualified
hydropower, and marine and hydrokinetic resources
through 2031, with the credit scheduled to phase down
by 20% in 2032 and 40% in 2033.
For large facilities (facilities with a maximum output of
at least one megawatt of electricity), the credit is
extended at a rate equal to 20% of the otherwise
applicable rate (i.e., extended at 0.5 cents per kWh if
the tax credit was 2.5 cents per kWh or extended at
0.26 cents per kWh if the tax credit was 1.3 cents per
kWh). Large facilities may be eligible for the full credit
amount if they pay prevailing wages during the
construction phase and during the first 10 years of
operation and if registered apprenticeship requirements
are met.
A “bonus credit” amount would be provided for
projects that meet domestic content requirements to
certify that the steel, iron, and manufactured products
used in the facility were domestically produced. The
bonus credit amount would be 2% of the credit
amount, or 10% for projects that meet wage and
workforce requirements.
Large facilities not meeting domestic content
requirements would be limited in the amount of the
credit that could be received as direct pay (see
“Elective Payment for Energy Property and Electricity
Produced from Certain Renewable Resources, Etc.”).
The limit would be 90% in 2024, 85% in 2025, and zero
afterward. This limit can be waived if materials are not
available domestically or if including domestic materials
would increase the facility’s construction cost by more
than 25%.
The proposal also extends the option to claim the
energy investment tax credit (ITC) in lieu of the PTC.
For background, see
Current law provides a temporary investment tax
credit (ITC) for investments in certain energy property.
This provision would extend and modify the ITC. The
credit would be extended at the full rate (30% for
solar, fuel cells, small wind, and waste energy recovery
property; 10% for combined heat and power,
microturbine, and geothermal heat pumps) through
2031. The 30% rate would be reduced to 26% in 2032
and 22% in 2033. Property must be placed in service by
the end of 2035. This list of qualifying property is
expanded to include energy storage technology,
qualified biogas property, electrochromic glass, and
For background, see
Congressional Research Service
CRS Report R43453, The
Renewable Electricity
Production Tax Credit: In Brief,
by Molly F. Sherlock.
CRS Report R46865, Energy
Tax Provisions: Overview and
Budgetary Cost, by Molly F.
Sherlock.
CRS Report R46451, Energy
Tax Provisions Expiring in
2020, 2021, 2022, and 2023
(“Tax Extenders”), by Molly F.
Sherlock, Margot L.
Crandall-Hollick, and
Donald J. Marples.
CRS Report R45171,
Registered Apprenticeship:
Federal Role and Recent
Federal Efforts, by Benjamin
Collins.
CRS In Focus IF11927,
Federally Funded Construction
and the Payment of Locally
Prevailing Wages, by David H.
Bradley and Jon O.
Shimabukuro.
CRS In Focus IF10479, The
Energy Credit or Energy
Investment Tax Credit (ITC),
by Molly F. Sherlock.
CRS Report R46865, Energy
Tax Provisions: Overview and
Budgetary Cost, by Molly F.
Sherlock.
13
Tax Provisions in the “Build Back Better Act"
Section Title
Increase in Energy
Credit for Solar
Facilities Placed in
Service in
Connection with
Low-Income
Communities
Description
CRS Resources
microgrid controllers at the 30% rate. Linear generator
assemblies would be added to the definition of
qualifying fuel cells.
For large facilities (facilities with a maximum output of
at least one megawatt of electricity) the credit would
be extended at a rate equal to 20% of the otherwise
applicable rate (e.g., if the tax credit was 30%, the
credit for a large facility would be 6%). Large facilities
may be eligible for the full credit amount if they pay
prevailing wages during the construction phase and
during the first five years of operation and if registered
apprenticeship requirements are met.
A “bonus credit” amount would be provided for
projects that meet domestic content requirements to
certify that the steel, iron, and manufactured products
used in the facility were domestically produced. The
bonus credit amount would be 2% of the credit
amount, or 10% for projects that meet wage and
workforce requirements.
Large facilities not meeting domestic content
requirements would be limited in the amount of the
credit that could be received as direct pay (see
“Elective Payment for Energy Property and Electricity
Produced from Certain Renewable Resources, Etc.”).
The limit would be 90% in 2024, 85% in 2025, and zero
afterward. This limit can be waived if materials are not
available domestically or if including domestic materials
would increase the facility’s construction cost by more
than 25%.
CRS Report R46451, Energy
Tax Provisions Expiring in
2020, 2021, 2022, and 2023
(“Tax Extenders”), by Molly F.
Sherlock, Margot L.
Crandall-Hollick, and
Donald J. Marples.
CRS Report R45171,
Registered Apprenticeship:
Federal Role and Recent
Federal Efforts, by Benjamin
Collins.
CRS In Focus IF11927,
Federally Funded Construction
and the Payment of Locally
Prevailing Wages, by David H.
Bradley and Jon O.
Shimabukuro.
This provision would allow for the allocation of 1.8
gigawatts for “environmental justice solar capacity”
credits annually from 2022 through 2031. Taxpayers
receiving a capacity allocation may be entitled to tax
credits. Specifically, projects receiving an allocation that
are located in a low-income community would be
eligible for a 10% bonus investment tax credit, while
projects that are part of a low-income residential
building project or qualified low-income economic
benefit project would be eligible for a 20% bonus
investment credit. No facility can receive more than a
maximum 20% bonus investment credit under this
provision.
Qualifying solar facilities would include those with a
nameplate capacity of 5 megawatts or less, and
qualifying property would include energy storage
property installed in connection with the solar
property and interconnection property.
The Secretary of the Treasury would consult with the
Secretary of Energy and EPA Administrator in
determining allocations. Facilities selected for
allocations would be facilities that would result in the
greatest health and economic benefits for individuals in
low-income communities, including the ability to
withstand extreme weather events; the greatest
employment and wages for individuals in low-income
communities; and the greatest engagement with,
outreach to, or ownership by, individuals in low-income
For background on the ITC, see
Congressional Research Service
CRS In Focus IF10479, The
Energy Credit or Energy
Investment Tax Credit (ITC),
by Molly F. Sherlock.
For background on housing
assistance programs, see
CRS Report RL34591,
Overview of Federal Housing
Assistance Programs and
Policy, by Maggie McCarty,
Libby Perl, and Katie Jones.
14
Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
communities. Facilities receiving an allocation will have
certain information disclosed to the public and be
required to have the facility placed in service within
four years.
Elective Payment
for Energy
Property and
Electricity
Produced from
Certain
Renewable
Resources, Etc.
This provision would allow taxpayers to treat certain
tax credit amounts as payments of tax. Excess
payments can be refunded to the taxpayer, allowing the
credits to be received as “direct pay.” This direct
payment would be allowed for the Section 30C credit
for alternative fuel refueling property, the Section 45
renewable electricity production credit, the Section
45Q carbon oxide sequestration credit, the Section 48
energy investment tax credit, and the Section 48C
qualifying advanced energy project credit. The direct
pay election would also be available to the new Section
48D investment credit for electric transmission
property; new Section 48E zero emission facility credit;
new Section 45X clean hydrogen production credit;
and new Section 45W zero-emission nuclear power
production credit.
Tax-exempt entities, including state and local
governments and Indian tribal governments, would be
treated as taxpayers eligible to elect a direct payment.
Special rules provide that in the case of U.S. territories,
for non-mirror code jurisdictions, Treasury would
reimburse territorial governments for any direct
payments made under similar programs. The provision
would only apply to mirror-code jurisdictions upon
election.
For background, see
Investment Credit
for Electric
Transmission
Property
This provision would create a new ITC for qualifying
electric transmission property, which includes property
capable of transmitting at least 275 kilovolts, with a
capacity of not less than 500 megawatts. Upgrades of
existing lines are treated as replacements. The new ITC
would be 6% of qualifying investments, with a 30% ITC
available for projects that pay prevailing wages during
the construction phase and during the first five years of
operation and for which registered apprenticeship
requirements are met.
“Bonus credit” amounts for domestic content and
limits on direct pay related to domestic content, similar
to those applying to the ITC (see “Extension and
Modification of Energy Credit”), would apply to this
new ITC as well.
The credit would be available for property placed in
service before December 31, 2031.
For background, see
This provision would allow for the allocation of $250
million in zero emissions facility credits annually from
2022 through 2031. The zero emission facility credit
would be a 30% ITC for a facility that (1) generates
electricity; (2) does not generate greenhouse gases; (3)
uses a technology or process which in the previous
year had a market penetration level of less than 3% for
the commercial generation of electricity; and (4) is not
eligible for the PTC, ITC, Section 45Q carbon oxide
sequestration credit, or advanced nuclear PTC. To be
For background, see
Zero Emissions
Facility Credit
Congressional Research Service
CRS Report R45693, Tax
Equity Financing: An
Introduction and Policy
Considerations, by Mark P.
Keightley, Donald J. Marples,
and Molly F. Sherlock.
CRS Report R45171,
Registered Apprenticeship:
Federal Role and Recent
Federal Efforts, by Benjamin
Collins.
CRS In Focus IF11927,
Federally Funded Construction
and the Payment of Locally
Prevailing Wages, by David H.
Bradley and Jon O.
Shimabukuro.
CRS Report R45171,
Registered Apprenticeship:
Federal Role and Recent
Federal Efforts, by Benjamin
Collins.
CRS In Focus IF11927,
Federally Funded Construction
and the Payment of Locally
15
Tax Provisions in the “Build Back Better Act"
Section Title
Description
eligible for allocations, facilities would be required to
pay prevailing wages and meet registered
apprenticeship requirements. Allocation recipients
would be publicly disclosed.
The Secretary of the Treasury would consult with the
Secretary of Energy and EPA Administrator in
determining allocations. Facilities selected for
allocations would be facilities that would result in the
greatest reduction of greenhouse gas emissions, have
the greatest potential for technological innovation and
deployment, and would result in the greatest reduction
of local environmental effects that are harmful to
human health.
Taxpayers could elect to receive the credit as “direct
pay,” and limits related to domestic content for direct
pay are similar to those applying to the ITC (discussed
above).
Congressional Research Service
CRS Resources
Prevailing Wages, by David H.
Bradley and Jon O.
Shimabukuro.
16
Tax Provisions in the “Build Back Better Act"
Section Title
Extension and
Modification of
Credit for Carbon
Oxide
Sequestration
Description
CRS Resources
Under current law, industrial carbon capture or direct
air capture facilities that begin construction by
December 31, 2025, can qualify for the Section 45Q
tax credit for carbon oxide sequestration. This tax
credit can be claimed for carbon oxide captured during
the 12-year period following a qualifying facility’s being
placed in service. Currently, the per metric ton tax
credit for geologically sequestered carbon oxide is set
to increase to $50 per ton by 2026 ($35 per ton for
carbon oxide that is reused, such as for enhanced oil
recovery) and adjusted for inflation thereafter. This
provision would extend the start of construction
deadline to December 31, 2031.
The amount of carbon oxide that must be captured at a
qualifying facility would be reduced to 1,000 metric
tons annually for a direct air capture (DAC) facility,
18,750 metric tons annually (not less than 75% of which
would otherwise have been released into the
atmosphere) for an electricity generating facility, and
12,500 metric tons for any other facility (not less than
50% of which would otherwise have been released into
the atmosphere).
For large facilities (facilities with a maximum output of
at least one megawatt of electricity), the credit would
be extended at a rate equal to 20% of the otherwise
applicable rate (i.e., if the tax credit was $50 per metric
ton, the credit for a large facility would be $10 per
metric ton). Large facilities may be eligible for the full
credit amount if they pay prevailing wages during the
construction phase and during the first 12 years of
operation and if registered apprenticeship requirements
are met.
The credit amount for DAC would be increased to a
base rate of $36 per metric ton, meaning the credit
would be $180 per metric ton if wage and workforce
requirements were met. These amounts would be $26
and $130 per metric ton for carbon oxide captured
using DAC that is beneficially reused.
For background, see
Green Energy
Publicly Traded
Partnerships
If 90% of a business’s gross income is qualifying income,
the business can elect to be treated as a master limited
partnership (MLP), allowing the business to be taxed as
a partnership while ownership interests are tradable in
financial markets. Qualifying income currently includes
mining and natural resource income. This provision
would expand the definition of qualifying income to
include income derived from green and renewable
energy. These additions include income from certain
activities related to energy production eligible for the
PTC, energy property eligible for the ITC, renewable
fuels, and carbon sequestration projects eligible for
credits under Section 45Q.
For background, see
Zero-Emission
Nuclear Power
Production Credit
This provision would create a new 1.5 cent per kWh
tax credit for qualifying zero-emission nuclear power
produced and sold after December 31, 2021. Qualified
nuclear power facilities are taxpayer-owned facilities
that use nuclear power to generate electricity that did
For background, see
Congressional Research Service
CRS In Focus IF11455, The
Tax Credit for Carbon
Sequestration (Section 45Q),
by Angela C. Jones and
Molly F. Sherlock.
CRS Insight IN11710, Carbon
Capture and Sequestration
Tax Credit (“Section 45Q”)
Legislation in the 117th
Congress, by Molly F.
Sherlock and Angela C.
Jones.
CRS Report R46451, Energy
Tax Provisions Expiring in
2020, 2021, 2022, and 2023
(“Tax Extenders”), by Molly F.
Sherlock, Margot L.
Crandall-Hollick, and
Donald J. Marples.
CRS Report R45171,
Registered Apprenticeship:
Federal Role and Recent
Federal Efforts, by Benjamin
Collins.
CRS In Focus IF11927,
Federally Funded Construction
and the Payment of Locally
Prevailing Wages, by David H.
Bradley and Jon O.
Shimabukuro.
CRS Report R41893, Master
Limited Partnerships: A Policy
Option for the Renewable
Energy Industry, by Molly F.
Sherlock and Mark P.
Keightley.
CRS Report R42853,
Nuclear Energy: Overview of
Congressional Issues, by Mark
Holt.
17
Tax Provisions in the “Build Back Better Act"
Section Title
Description
not receive an advanced nuclear production tax credit
allocation under Section 45J, and are placed in service
before the date of enactment (i.e., are existing nuclear
power plants).
For large facilities (facilities with a maximum output of
at least one megawatt of electricity) the credit would
be extended at a rate equal to 20% of the otherwise
applicable rate (i.e., extended at 0.3 cents per kWh if
the tax credit was 1.5 cents per kWh). Large facilities
may be eligible for the full credit amount if they pay
prevailing wages and registered apprenticeship
requirements are met.
The credit would be reduced when the price of
electricity increases. Credits would be reduced by a
“reduction amount,” which is 80% of gross receipts
(excluding certain state and local zero-emissions grants)
from electricity produced by the facility and sold over
the product of 0.5 cents (2.5 cents for projects that
qualify for the full credit amount) times the amount of
electricity sold during the taxable year.
Credit amounts and amounts in the phaseout formula
are adjusted for inflation. Taxpayers could elect to
receive the credit as direct pay (discussed above).
The credit would terminate on December 31, 2026.
CRS Resources
CRS Insight IN10725, The
Advanced Nuclear Production
Tax Credit, by Molly F.
Sherlock and Mark Holt.
CRS Report R45171,
Registered Apprenticeship:
Federal Role and Recent
Federal Efforts, by Benjamin
Collins.
CRS In Focus IF11927,
Federally Funded Construction
and the Payment of Locally
Prevailing Wages, by David H.
Bradley and Jon O.
Shimabukuro.
Part 2—Renewable Fuels
Extension of
Incentives for
Biodiesel,
Renewable Diesel,
and Alternative
Fuels
Current law provides a 50-cents-per-gallon tax credit
for alternative fuels and alternative fuel mixtures
through 2021 and a $1.00-per-gallon tax credit for
biodiesel and renewable diesel (with an additional
$0.10-per-gallon tax credit for agri-biodiesel) through
2022. The biodiesel and renewable diesel mixtures tax
credit may be claimed as an instant excise tax credit
against the blender’s motor and aviation fuels excise
taxes. Credits in excess of excise tax liability may be
refunded. The biodiesel and small agri-biodiesel credits
may be claimed as income tax credits. The alternative
fuels credit can be claimed as an excise tax credit or
received as an outlay. The alternative fuels mixture
credit is an excise tax credit.
This provision would extend the existing tax credits for
alternative fuels and alternative fuel mixtures and
biodiesel and renewable diesel through December 31,
2031.
For background, see
Extension of
SecondGeneration Biofuel
Incentives
Current law provides a $1.01-per-gallon income tax
credit for second-generation biofuel production
through 2021. This provision would extend the secondgeneration biofuel producer tax credit through
December 31, 2031.
For background, see
Congressional Research Service
CRS Report R46865, Energy
Tax Provisions: Overview and
Budgetary Cost, by Molly F.
Sherlock.
CRS Report R46451, Energy
Tax Provisions Expiring in
2020, 2021, 2022, and 2023
(“Tax Extenders”), by Molly F.
Sherlock, Margot L.
Crandall-Hollick, and
Donald J. Marples.
CRS Report R46865, Energy
Tax Provisions: Overview and
Budgetary Cost, by Molly F.
Sherlock.
CRS Report R46451, Energy
Tax Provisions Expiring in
2020, 2021, 2022, and 2023
(“Tax Extenders”), by Molly F.
Sherlock, Margot L.
Crandall-Hollick, and
Donald J. Marples.
18
Tax Provisions in the “Build Back Better Act"
Section Title
Description
Sustainable
Aviation Fuel
Credit
This provision would create a new tax credit for the
sale or mixture of sustainable aviation fuel starting in
2023. The tax credit would have a base amount of
$1.25 per gallon, with a supplemental credit amount of
$0.01 per gallon for each percentage point by which the
lifecycle greenhouse gas emissions reduction
percentage for the fuel exceeds 50% (with a maximum
supplemental credit of $0.50 per gallon). Sustainable
aviation fuel is defined as liquid fuel that (1) meets the
requirements of either ASTM International Standard
D7566 or the Fischer Tropsch provisions of ASTM
International Standard D1655, Annex; (2) is not derived
from palm fatty acid distillates or petroleum; and (3)
has been certified to achieve at least a 50% lifecycle
greenhouse gas reduction percentage as compared to
petroleum-based jet fuel.
The sustainable aviation fuel credit may be used to
offset fuel excise tax liability or, in the case of
insufficient fuel excise tax liability, be received as a
payment. Like the tax credit for biodiesel and
renewable diesel, there would be a coordinated income
tax credit. Credit amounts would be included in a
taxpayer’s gross income for income tax purposes.
The credit would expire after December 31, 2031.
For background, see
Clean Hydrogen
This provision would create a new credit for the
qualified production of clean hydrogen. The credit
would be available for qualified clean hydrogen
produced at a qualifying facility during the facility’s first
10 years of operation. The maximum credit amount
would be $3.00 per kilogram (indexed for inflation) for
hydrogen that is produced through a process that, as
compared to hydrogen produced by steam methane
reforming, achieves a percentage reduction in lifecycle
greenhouse gas emissions which is at least 95% and, in
the case of a large facility (defined below), meets wage
and workforce requirements. Reduced tax credits
would be available for qualified clean hydrogen that
achieves lower levels of emissions reduction (20% of
the regular credit amount for emissions reduction of
40% to 75%; 25% for an emissions reduction of 75% to
85%; and 34% for an emissions reduction of 85% to
95%).
For large facilities (facilities with a maximum output of
at least one megawatt), the credit would be available at
a rate equal to 20% of the otherwise applicable rate
(i.e., if the tax credit was $3.00 per kilogram, the credit
for a large facility would be $0.60 per kilogram). Large
facilities may be eligible for the full credit amount if
they pay prevailing wages during the construction phase
and during the first 10 years of operation and if
registered apprenticeship requirements are met.
Taxpayers could elect to receive the credit as direct
pay (see “Elective Payment for Energy Property and
Electricity Produced from Certain Renewable
Resources, Etc.”). Taxpayers cannot claim credits for
clean hydrogen produced at facilities that claimed
credits under Section 45Q. Taxpayers could elect to
For background, see
Congressional Research Service
CRS Resources
CRS In Focus IF11696,
Aviation and Climate Change,
by Richard K. Lattanzio.
CRS Report R45171,
Registered Apprenticeship:
Federal Role and Recent
Federal Efforts, by Benjamin
Collins.
CRS In Focus IF11927,
Federally Funded Construction
and the Payment of Locally
Prevailing Wages, by David H.
Bradley and Jon O.
Shimabukuro.
19
Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
claim the energy investment tax credit (ITC) in lieu of
the clean hydrogen production credit.
The provision would terminate the alternative fuel
excise tax credit for hydrogen after December 31,
2021.
The credit would not be available to facilities that start
construction after December 31, 2028.
Part 3—Green Energy and Efficiency Incentives for Individuals
Extension,
Increase, and
Modifications of
Nonbusiness
Energy Property
Credit
Residential EnergyEfficient Property
Energy-Efficient
Commercial
Buildings
Deduction
Current law provides a 10% tax credit for qualified
energy-efficiency improvements and expenditures for
residential energy property on a taxpayer’s primary
residence through 2021. The credit is subject to a $500
per taxpayer lifetime limit. This provision would extend
the tax credit through December 31, 2031, and make
additional modifications.
The proposed modifications would increase the credit
rate to 30% with an annual per-taxpayer limit of $1,200.
The credit would be allowed for expenditures made on
any dwelling unit used by the taxpayer (not limited to
primary residences). Limits for expenditures on
windows and doors would also be increased. Required
energy efficiency standards would be modified, and
changed to update over time without additional
legislative action. Qualifying building envelope
components would no longer include roofs, but would
include air barrier insulation. A 30% credit, up to $150,
would be allowed for home energy audits. Treasury
would be given the authority to treat errors related to
this section as mathematical or clerical errors. Starting
in 2024, product identification numbers would be
required to claim the tax credit.
For background, see
Current law provides a tax credit for the purchase of
solar electric property, solar water heating property,
fuel cells, geothermal heat pump property, small wind
energy property, and qualified biomass fuel property.
The credit rate is 26% through 2022 (it was 30%
through 2019), and is scheduled to be reduced to 22%
in 2023 before expiring. This provision would extend
the credit through December 31, 2033, restoring the
30% credit rate after 2021 and through 2031, and then
reducing the credit rate to 26% in 2032 and 22% in
2033. Qualified battery storage technology would be
added to the list of eligible property.
For background, see
Under current law, a permanent deduction of up to
$1.80 per square foot is allowed for certain energysaving commercial building property installed as part of
(1) the interior lighting system; (2) the heating, cooling,
ventilation, or hot water system; or (3) the building
envelope.
This provision would temporarily modify the energyefficient commercial building deduction, with the
modifications effective through 2031.
For background, see
Congressional Research Service
CRS Report R42089,
Residential Energy Tax Credits:
Overview and Analysis, by
Margot L. Crandall-Hollick
and Molly F. Sherlock.
CRS Report R46451, Energy
Tax Provisions Expiring in
2020, 2021, 2022, and 2023
(“Tax Extenders”), by Molly F.
Sherlock, Margot L.
Crandall-Hollick, and
Donald J. Marples.
CRS Report R42089,
Residential Energy Tax Credits:
Overview and Analysis, by
Margot L. Crandall-Hollick
and Molly F. Sherlock.
CRS Report R46451, Energy
Tax Provisions Expiring in
2020, 2021, 2022, and 2023
(“Tax Extenders”), by Molly F.
Sherlock, Margot L.
Crandall-Hollick, and
Donald J. Marples.
CRS Committee Print
CP10004, Tax Expenditures:
Compendium of Background
Material on Individual
Provisions — A Committee
Print Prepared for the Senate
Committee on the Budget,
2020, by Jane G. Gravelle et
al. (pp. 99-104).
20
Tax Provisions in the “Build Back Better Act"
Section Title
Extension,
Increase, and
Modifications of
New EnergyEfficient Homes
Credit
Modification to
Income Exclusion
for Conservation
Subsidies
Description
CRS Resources
The temporary modifications would reduce the amount
by which a building must increase its efficiency relative
to a reference building, from 50% to 25%. They would
further provide that the per-square-foot deduction of
$0.50 be increased by $0.02 for each percentage point
by which the certified efficiency improvements reduce
energy and power costs, with a maximum amount of
$1.00 per square foot. For projects that meet prevailing
wage requirements and registered apprenticeship
requirements, the base credit is $2.50, which is
increased by $0.10 for each percentage point increase
in energy efficiency, with a maximum credit amount of
$5.00 per square foot. The maximum credit amount is
the total deduction a building can claim over a fouryear period (the current tax year plus the three
preceding tax years). Taxpayers making energyefficiency retrofits that are part of a qualified retrofit
plan on a building that is at least five years old may be
able to deduct their adjusted basis in the retrofit
property (so long as that amount does not exceed a
per-square foot value determined on the basis of
energy usage intensity).
CRS Report R45171,
Registered Apprenticeship:
Federal Role and Recent
Federal Efforts, by Benjamin
Collins.
CRS In Focus IF11927,
Federally Funded Construction
and the Payment of Locally
Prevailing Wages, by David H.
Bradley and Jon O.
Shimabukuro.
Under current law, through 2021, a tax credit is
available for eligible contractors for building and selling
qualifying energy-efficient new homes. The credit is
equal to $2,000, with certain manufactured homes
qualifying for a $1,000 credit. This provision would
extend the energy-efficient new home credit through
December 31, 2031, and increase and modify the credit
amount. For homes acquired after 2021, a $2,500
credit would be available for new homes that meet
certain Energy Star efficiency standards, and a $5,000
credit would be available for new homes that are
certified as zero-energy ready homes. Multifamily
dwellings that meet certain Energy Star efficiency
standards may be eligible for a $500 credit per unit,
with a $1,000 per unit credit available for eligible zeroenergy ready multifamily dwellings. The credits for
multifamily dwelling units are increased to $2,500 and
$5,000, respectively, if the taxpayer ensures that the
laborers and mechanics employed by contractors and
subcontractors in the construction of the residence are
paid prevailing wages.
For background, see
Under current law, subsidies provided by public utilities
to customers for the purchase or installation of energy
conservation measures are excluded from taxable
income. This provision would provide that amounts
provided for water conservation or efficiency, storm
water management, or wastewater management could
also be excluded. For wastewater management, the
property purchased or installed must be on the
taxpayer’s principal residence. The provision would be
effective for amounts received after December 31,
2018.
For background, see
Congressional Research Service
CRS Report R46451, Energy
Tax Provisions Expiring in
2020, 2021, 2022, and 2023
(“Tax Extenders”), by Molly F.
Sherlock, Margot L.
Crandall-Hollick, and
Donald J. Marples.
CRS In Focus IF11927,
Federally Funded Construction
and the Payment of Locally
Prevailing Wages, by David H.
Bradley and Jon O.
Shimabukuro.
CRS Committee Print
CP10004, Tax Expenditures:
Compendium of Background
Material on Individual
Provisions — A Committee
Print Prepared for the Senate
Committee on the Budget,
2020, by Jane G. Gravelle et
al. (pp. 121-124).
21
Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
Part 4—Greening the Fleet and Alternative Vehicles
Refundable New
Qualified Plug-In
Electric Drive
Motor Vehicles
Credit for
Individuals
This provision would create a new refundable tax
credit to replace the existing nonrefundable tax credit
for plug-in electric vehicles (EVs), effective for 2022.
The credit would be $4,000 for vehicles with a battery
capacity of 7 kilowatt hours (10 kilowatt hours after
2023), plus $3,500 for vehicles with a battery capacity
of at least 40 kilowatt hours (50 kilowatt hours after
2026). An additional amount of $4,500 would be
available for domestically assembled vehicles, and an
additional amount of $500 would be available for
vehicles meeting domestic content requirements. The
maximum per-vehicle credit would be up to $12,500,
not to exceed 50% of the vehicle purchase price.
Vehicles subject to depreciation are ineligible.
The credit would phase out for married taxpayers filing
a joint return with modified AGI above $800,000
($600,000 in the case of head of household filers;
$400,000 in the case of other filers). The credit is
reduced by $200 for each $1,000 (or fraction thereof)
by which the taxpayer’s modified AGI exceeds the
threshold amount.
Credits would only be allowed for vehicles that have a
manufacturer’s suggested retail price of less than
$55,000 for sedans, $64,000 for vans, $69,000 for
SUVs, and $74,000 for pickup trucks.
Starting in 2027, the $4,000 plus $3,500 base credit
would be available only for EVs with final assembly
occurring in the United States.
Two- and three-wheeled electric vehicles would be
allowed a 10% tax credit, up to $2,500.
Starting in 2022, taxpayers purchasing or leasing eligible
vehicles can elect to transfer the tax credit to the
dealer, so long as the dealer meets registration,
disclosure, and other requirements.
Taxpayers would be required to include the vehicle
identification number (VIN) on their tax return to claim
a tax credit.
Payments would be made to territories for the revenue
loss associated with the EV credit.
The existing nonrefundable tax credit for plug-in
electric vehicles under Section 30D would be repealed.
The credit would not apply to vehicles acquired after
December 31, 2031.
Congressional Research Service
For background, see
CRS In Focus IF11017, The
Plug-In Electric Vehicle Tax
Credit, by Molly F. Sherlock.
CRS Report R46864,
Alternative Fuels and Vehicles:
Legislative Proposals, by
Melissa N. Diaz.
CRS Report R46231, Electric
Vehicles: A Primer on
Technology and Selected Policy
Issues, by Melissa N. Diaz.
22
Tax Provisions in the “Build Back Better Act"
Section Title
Credit for
Previously Owned
Qualified Plug-In
Electric Drive
Motor Vehicles
Description
This provision would create a new refundable tax
credit for previously owned qualified plug-in electric
vehicles. The credit would be up to $2,500 (a base
credit of $1,250 for a vehicle with a battery capacity of
4 kilowatt hours, plus $208.50 for each additional
kilowatt hour of capacity), not to exceed 30% of the
vehicle purchase price.
The credit would phase out for married taxpayers filing
a joint return with modified AGI above $150,000
($112,500 in the case of head of household filers;
$75,000 in the case of other filers). The credit is
reduced by $200 for each $1,000 (or fraction thereof)
by which the taxpayer’s modified AGI exceeds the
threshold amount.
Credits would only be allowed for vehicles with a sale
price of $25,000 or less. This credit can only be claimed
one time per vehicle. Taxpayers would be required to
include the vehicle identification number (VIN) on their
tax return to claim a tax credit.
Payments would be made to territories for the revenue
loss associated with the EV credit.
The credit would not apply to vehicles acquired after
December 31, 2031.
CRS Resources
For background, see
CRS In Focus IF11017, The
Plug-In Electric Vehicle Tax
Credit, by Molly F. Sherlock.
CRS Report R46864,
Alternative Fuels and Vehicles:
Legislative Proposals, by
Melissa N. Diaz.
CRS Report R46231, Electric
Vehicles: A Primer on
Technology and Selected Policy
Issues, by Melissa N. Diaz.
Qualified
Commercial
Electric Vehicles
This provision would create a new 30% tax credit for
qualified commercial electric vehicles. Eligible vehicles
would have a battery capacity of not less than 30
kilowatt hours. Mobile machinery and qualified
commercial fuel cell vehicles would also be eligible for
this credit. Qualifying vehicles would be depreciable
property.
In the case of vehicles used by certain tax-exempt
entities (if the vehicle is not subject to a lease), the
seller can be treated as the taxpayer for the purposes
of claiming the credit.
Taxpayers would be required to include the vehicle
identification number (VIN) on their tax return to claim
a tax credit.
The credit would not apply to vehicles acquired after
December 31, 2031.
Qualified Fuel Cell
Motor Vehicles
Current law allows, through 2021, a tax credit of up to
$8,000 for fuel cell vehicles (the base credit amount is
$4,000, with up to an additional $4,000 available based
on fuel economy). Heavier vehicles qualify for up to a
$40,000 credit. This provision would modify the
definition of qualified fuel cell motor vehicles to exclude
vehicles subject to depreciation (commercial vehicles),
and extend the credit through December 31, 2031.
Commercial fuel cell vehicles would be eligible for the
new credit for qualified commercial electric vehicles.
For background, see
Current law allows, through 2021, a tax credit for the
cost of any qualified alternative fuel vehicle refueling
property installed by a business or at a taxpayer’s
For background, see
Alternative Fuel
Refueling Property
Credit
Congressional Research Service
CRS Report R46451, Energy
Tax Provisions Expiring in
2020, 2021, 2022, and 2023
(“Tax Extenders”), by Molly F.
Sherlock, Margot L.
Crandall-Hollick, and
Donald J. Marples.
CRS Report R46864,
Alternative Fuels and Vehicles:
Legislative Proposals, by
Melissa N. Diaz.
CRS Report R46451, Energy
Tax Provisions Expiring in
23
Tax Provisions in the “Build Back Better Act"
Section Title
Description
principal residence. The credit is equal to 30% of these
costs, limited to $30,000 for businesses at each
separate location with qualifying property, and $1,000
for residences. This provision would extend the credit
through December 31, 2031, and make additional
modifications. For residential property, the credit
would be extended at the 30% rate, with the credit
limit increased to $3,333.33. For business property
(property subject to depreciation), the credit would be
extended at a rate of 6% (30% if prevailing wage and
registered apprenticeship requirements were met),
with the credit limit increased to $100,000.
A supplemental 5% (20% if prevailing wage and
registered apprenticeship requirements are met) credit
would be available for costs above the $100,000 limit
for business property that refuels using only electricity
or fuel consisting of at least 85% hydrogen by volume.
To qualify for the supplemental credit, the property
must be intended for general public use (i.e., no fee or
payment arrangement required) and accept payments
via a credit card reader (including contactless
technology) or be exclusively used by fleets of
commercial or government vehicles.
The definition of qualifying property is modified to
include bidirectional charging equipment.
The credit would not apply to property placed in
service after December 31, 2031.
Reinstatement and
Expansion of
EmployerProvided Fringe
Benefits for
Bicycle
Commuting
Before 2018, up to $20 per month in employer
reimbursements for qualifying bicycle commuting
expenses were excludable from an employee’s income
and wages and hence not subject to income or
employment taxes. The TCJA (P.L. 115-97) temporarily
suspended, through 2025, the exclusion for employerprovided bicycle commuter fringe benefits. This
provision would repeal the suspension and expand the
exclusion for bicycle commuting benefits to include
employer provision or reimbursement for purchase,
lease or rental (including bikeshare), improvement,
repair, or storage of bikes or scooters for commuting
purposes. The amount excluded could be up to 30% of
the monthly dollar limit on qualified transportation
fringe benefits ($270 in 2021). This provision would
allow employees to elect a salary contribution for
bicycle commuting benefits (similar to other qualified
transportation fringe benefits).
Credit for Certain
New Electric
Bicycles
This provision would create a new refundable 15% tax
credit for qualified electric bicycles. The maximum
credit amount would be $750. The credit can be
claimed for one bike per three-year period per
taxpayer (two bikes in the case of a joint return).
Qualified electric bicycles include those made by a
qualified manufacturer and that include a VIN, cost no
more than $8,000, have an electric motor of less than
750 watts, and where the motor does not provide
assistance at higher speeds. Qualified manufacturers are
those that assign a VIN to electric bicycles produced
Congressional Research Service
CRS Resources
2020, 2021, 2022, and 2023
(“Tax Extenders”), by Molly
F. Sherlock, Margot L.
Crandall-Hollick, and
Donald J. Marples.
CRS Report R46864,
Alternative Fuels and Vehicles:
Legislative Proposals, by
Melissa N. Diaz.
CRS Report R46231, Electric
Vehicles: A Primer on
Technology and Selected Policy
Issues, by Melissa N. Diaz.
CRS Report R45171,
Registered Apprenticeship:
Federal Role and Recent
Federal Efforts, by Benjamin
Collins.
CRS In Focus IF11927,
Federally Funded Construction
and the Payment of Locally
Prevailing Wages, by David H.
Bradley and Jon O.
Shimabukuro.
24
Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
and provide that information to the Secretary of the
Treasury.
The credit would phase out for married taxpayers filing
a joint return with modified AGI above $150,000
($112,500 in the case of head of household filers;
$75,000 in the case of other filers). The credit is
reduced by $200 for each $1,000 (or fraction thereof)
by which the taxpayer’s modified AGI exceeds the
threshold amount. Prior-year modified AGI can be used
for the purposes of determining the phaseout if it was
less than current-year modified AGI.
Taxpayers would be required to include the vehicle
identification number (VIN) on their tax return to claim
a tax credit.
Payments would be made to territories for the revenue
loss associated with this credit.
The credit would not apply to bicycles acquired after
December 31, 2031.
Part 5—Investment in the Green Workforce
Extension of the
Advanced Energy
Project Credit
Labor Costs of
Installing
Mechanical
Insulation
Property
This provision would provide additional allocations of
the qualified advanced energy manufacturing tax credit,
which is a 30% tax credit for investments in projects
that reequip, expand, or establish certain energy
manufacturing facilities. The American Recovery and
Reinvestment Act (P.L. 111-5) provided $2.3 billion in
allocations, which have been fully allocated. An
additional $2.5 billion in allocations would be provided
in each year from 2022 to 2031. $400 million in annual
allocations would be for projects in automotive
communities. Only projects where prevailing wages are
paid and registered apprenticeship requirements are
met can be allocated credits. The Secretary would be
directed to consider which projects will have the
greatest net impact on avoiding or reducing emissions;
will provide the greatest domestic job creation; will
provide the greatest job creation in the vicinity of
projects in low-income communities and communities
with dislocated manufacturing or coal-industry
workers; and will provide the greatest job creation in
areas with populations more at risk for adverse health
or environmental effects, where a significant portion of
such population is comprised of communities of color,
low-income communities, tribal and Indigenous
communities, or individuals formerly employed in the
fossil fuel industry, and give the highest priority to
projects that manufacture (rather than assemble)
products and have the greatest potential for
commercial deployment. Recipients of tax credit
allocations will be publicly disclosed.
For background, see
CRS Committee Print
CP10004, Tax Expenditures:
Compendium of Background
Material on Individual
Provisions — A Committee
Print Prepared for the Senate
Committee on the Budget,
2020, by Jane G. Gravelle et
al. (pp. 221-224).
CRS Report R45171,
Registered Apprenticeship:
Federal Role and Recent
Federal Efforts, by Benjamin
Collins.
CRS In Focus IF11927,
Federally Funded Construction
and the Payment of Locally
Prevailing Wages, by David H.
Bradley and Jon O.
Shimabukuro.
This provision would create a new tax credit for 10%
of the labor cost of installing mechanical insulation.
The credit would not apply to costs incurred after
December 31, 2031.
Congressional Research Service
25
Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
Part 6—Environmental Justice
Qualified
Environmental
Justice Program
Credit
This provision would create a new refundable tax
credit for eligible educational institutions that received
an allocation from the Treasury and incur costs
associated with a qualified environmental justice
program. The credit is 30% for a program involving
material participation of faculty and students of an
institution described in Section 371(a) of the Higher
Education Act of 1965, and 20% otherwise. The
Secretary would be directed to select programs for
allocations from (1) institutions with high participation
in Section 371(a) of the Higher Education Act of 1965;
(2) programs where expected health and economic
outcomes would benefit low-income areas or areas
that experience or are at risk for environmental
stressors; and (3) applicants that would create or
significantly expand qualified environmental justice
programs. Applications must be made public and the
Secretary will disclose allocation recipients.
Up to $1 billion per year could be allocated from 2022
through 2031. The program would be effective upon
the date of enactment.
Part 7—Superfund
Reinstatement of
Superfund
This provision would permanently reinstate the
Hazardous Substance Superfund financing rate for
certain excise taxes starting in 2022, but would not
reauthorize the Superfund special environmental tax on
corporate income that also once financed this trust
fund.
This provision would permanently reinstate Superfund
excise taxes on domestic crude oil and imported
petroleum products at the rate of 16.4 cents per barrel
in 2022, with adjustments for inflation annually
thereafter. The previous tax rate was 9.7 cents per
barrel when this tax last expired at the end of 1995.
This provision also would permanently reinstate the
Superfund excise tax rates on domestically produced
chemical feedstocks and imported chemical derivatives
at the same rates that applied when these taxes last
expired at the end of 1995. The date of the applicability
of these tax rates is tied in current law to the
applicability of the Superfund excise tax rates for
domestic crude oil and imported petroleum products.
Therefore, these taxes would also be reinstated
starting in 2022.
Generally, the tax is paid by refineries that receive
crude oil or by the person using or importing a
petroleum product.
Revenues from the excise tax finance the Hazardous
Substance Superfund Trust Fund. Borrowing would be
authorized through repayable advances from the
General Fund of the U.S. Treasury until the end of
2031.
Congressional Research Service
For background, see
CRS Report R41039,
Comprehensive Environmental
Response, Compensation, and
Liability Act: A Summary of
Superfund Cleanup Authorities
and Related Provisions of the
Act, by David M. Bearden.
26
Tax Provisions in the “Build Back Better Act"
Source: CRS based on Subtitle G, Budget Reconciliation Legislative Recommendations Relating to Green
Energy.
Note: Provisions are effective in 2022 unless otherwise noted. The changes that would be made by the
provision are permanent, unless otherwise noted. “Section” citations refer to the section within the Internal
Revenue Code (IRC), 26 U.S.C., unless otherwise noted.
Congressional Research Service
27
Tax Provisions in the “Build Back Better Act"
Table 4. Subtitle H: Social Safety Net
Section Title
Description
CRS Resources
Part 1—Child Tax Credit
Modifications
Applicable
Beginning in 2021
The bill would make several changes to current law
applicable to 2021 (and 2022 as described below),
including:
Safe Harbor
Under current law, low- and moderate-income
taxpayers who receive excess advance child credit
payments may, in certain situations, be protected from
repayment as a result of a safe harbor provision. Excess
advance payments are equal to the value of the credit a
taxpayer is eligible to claim on their tax return minus
amounts received as advance payments.
The safe harbor applies in cases where there is a change
in the number of qualifying children used to estimate the
advance payment in comparison to the number of
children taken into consideration when claiming the
credit on an income tax return. For example, the
advance payments of the 2021 credit will be based on an
estimate of the 2021 credit amount generally using 2020
tax data. Differences in the number of qualifying children
between 2021 and 2020 may occur when children move
between taxpayers from year to year (and this
information is not provided to the IRS during 2021).
This provision would amend the existing safe harbor
such that the safe harbor would not apply in cases where
the qualifying child taken into account in determining the
advance payment amount was done so either
fraudulently or due to intentional disregard of the rules
and regulations. This provision would apply in cases
where two taxpayers knowingly set up an arrangement
whereby one taxpayer receives advance payments
(equaling up to 50% of the 2021 credit), while the other
claims the full amount of the credit on their 2021 return.
Joint Returns
Under current law, to determine the amount of the
credit a taxpayer will receive with their 2021 tax return,
the taxpayer first calculates the total amount of the 2021
child credit they are eligible for. The taxpayer then
subtracts from this amount the sum of all the advance
payments of the 2021 credit they received. The
difference is the amount they will receive with their
2021 return (generally filed in 2022).
For the purposes of calculating the amount of the credit
a taxpayer will receive with their 2021 return, the
provision would provide that each spouse would be
assumed to have received half of the advance amount.
This may be relevant, for example, in cases where the
taxpayer’s marital status differs between the year used
to calculate the advance payments (2020 or 2019) and
2021.
Information Used to Determine Advance
Payment Amounts
The provision would clarify that the data available to the
IRS to calculate advance payments of the 2021 credit
Congressional Research Service
For more information, see
CRS Insight IN11757, The
Child Tax Credit Under the
House Ways and Means
Committee “Build Back Better”
Reconciliation Language:
Summary Table of Changes,
by Margot L. CrandallHollick.
For background, see
CRS Report R46900, The
Child Tax Credit: Frequently
Asked Questions (FAQs) About
the Child Credit for 2021 as
Expanded by the American
Rescue Plan Act of 2021
(ARPA; P.L. 117-2), by Margot
L. Crandall-Hollick.
CRS Insight IN11752, The
Impact of a “Fully Refundable”
Child Tax Credit, by Margot L.
Crandall-Hollick.
CRS Insight IN11656, The
Child Tax Credit: How Would
the Biden Administration’s
Proposed American Families
Plan Change the Child Tax
Credit?, by Margot L.
Crandall-Hollick.
28
Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
include “any information known to the [Treasury]
Secretary.”
These provisions would apply to the child credit claimed
on 2021 and 2022 returns, and advance payments of
these credits issued in 2021 and 2022.
Extension and
Modification of
Child Tax Credit
and Advance
Payment for 2022
The American Rescue Plan Act of 2021 (ARPA; P.L. 1172) temporarily increased (for 2021) the child credit for
many taxpayers with children. Specifically, the law
increased the maximum child credit from $2,000 per
child to $3,000 per child ($3,600 for children under 6
years old); expanded the eligibility age for children to
include 17 year olds; and made the credit “fully
refundable.”
The bill would extend the 2021 ARPA-expanded child
credit to 2022 (as modified above), with additional
changes to the 2021 credit in effect for 2022
summarized below.
Modification of Advance Payment Program
Under current law, the advance payment program for
the 2021 child credit advances up to 50% of the
estimated 2021 credit amount in equal periodic
payments between July 1, 2021, and December 31, 2021.
(The IRS is issuing advance payments in six monthly
payments between July 15, 2021, and December 15,
2021.)
The provision would advance all (i.e., 100%) of the
estimated 2022 child credit through the end of
December 31, 2022, in equal periodic payments.
Repeal of SSN Requirement for Qualifying
Children
Under current law (in effect from 2018 to 2025), a
taxpayer can only receive the child credit for an
otherwise-eligible child if they provide the child’s Social
Security Number (SSN). This SSN must be associated
with work authorization, meaning an SSN issued solely
to receive a public benefit does not qualify. These types
of work-authorized SSNs are generally provided to all
U.S. citizen children and certain noncitizen children,
including legal permanent residents (i.e., “green card
holders”), refugees, and asylees. As a result of this
provision, for example, taxpayers cannot claim the child
credit for otherwise-eligible children with individual
taxpayer identification numbers (ITINs).
The provision would repeal this “work-authorized” SSN
requirement for qualifying children. Hence, eligible
taxpayers with “ITIN children” (i.e., children with
individual taxpayer identification numbers or ITINs)
could claim the credit for those children (assuming those
children meet all the other eligibility requirements).
(Other provisions of this bill, discussed subsequently,
would effectively permanently repeal the workauthorized SSN requirement for children.)
Income Lookback
Under current law, when a taxpayer claims the credit for
a given year, they use the income for that year to
Congressional Research Service
For more information, see
CRS Insight IN11757, The
Child Tax Credit Under the
House Ways and Means
Committee “Build Back Better”
Reconciliation Language:
Summary Table of Changes,
by Margot L. CrandallHollick.
CRS Insight IN11759, The
Child Tax Credit Under the
House Ways and Means
Committee “Build Back Better”
Reconciliation Language:
Calculating the Monthly Credit
Amount, by Margot L.
Crandall-Hollick.
For background, see
CRS Report R46900, The
Child Tax Credit: Frequently
Asked Questions (FAQs) About
the Child Credit for 2021 as
Expanded by the American
Rescue Plan Act of 2021
(ARPA; P.L. 117-2), by Margot
L. Crandall-Hollick.
CRS Insight IN11752, The
Impact of a “Fully Refundable”
Child Tax Credit, by Margot L.
Crandall-Hollick.
CRS Insight IN11656, The
Child Tax Credit: How Would
the Biden Administration’s
Proposed American Families
Plan Change the Child Tax
Credit?, by Margot L.
Crandall-Hollick.
CRS Report R43840, Federal
Income Taxes and
Noncitizens: Frequently Asked
Questions, by Erika K. Lunder
and Margot L. CrandallHollick.
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determine whether and to what extent the credit is
subject to phaseout. For example, a taxpayer would use
their annual 2022 income to calculate their 2022 child
credit amount, if subject to the phaseout.
The provision would allow taxpayers to use the
preceding year’s income to determine their current
year’s credit amount, if subject to the phaseout.
Specifically, under this provision a taxpayer could use
their 2021 income to calculate their 2022 credit for
purposes of the phaseout. This provision would limit the
amount taxpayers would need to pay back due to annual
fluctuations in their income.
Inflation Adjustments
Under current law, most provisions of the child tax
credit are not annually adjusted for inflation.a
Under the provision, for 2022 the following parameters
would be adjusted for inflation occurring between 2020
and 2021: the $500 credit for “other dependents,” that
is, dependents who were not eligible for the child credit
(rounded to the nearest multiple of $10); the $3,000 and
$3,600 maximum credit amounts for older and young
children (rounded to the nearest multiple of $100); the
$3,000 and $3,600 maximum safe harbor amounts
(rounded to the nearest multiple of $100); the
$75,000/$112,500/$150,000 thresholds above which the
credit begins to phase down (rounded to the nearest
multiple of $5,000).
Modification of Safe Harbor
Under current law, low- and moderate-income
taxpayers who receive excess advance payments may, in
certain situations, be protected from repayment as a
result of a safe harbor provision. The safe harbor applies
in cases where there is a change in the number of
qualifying children used to estimate the advance payment
in comparison to the number of children taken into
consideration when claiming the credit on an income tax
return. For example, the advance payments of the 2022
credit would generally be based on an estimate of the
2022 credit amount using 2021 tax data. Differences in
the number of qualifying children between 2022 and
2021 could occur when children move between
taxpayers from year to year (and this information is not
provided to the IRS during the year). The safe harbor
would not apply in cases of fraud or reckless disregard of
the rules and regulations of the credit.
The maximum amount of the safe harbor for 2021 is
$2,000 multiplied by the difference in the number of
qualifying children between 2021 and 2020 (2019, if 2020
data are unavailable). This amount then gradually phases
out as income rises. The prior-year data—in this case
2020 data, or if they are unavailable 2019 data—used to
administer the advance payments is generally referred to
as the “reference year” data.
For 2022, the maximum safe harbor would be larger.
Specifically, the maximum safe harbor would be
calculated as $3,600 times the number of young children
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taken into consideration during the reference year (to
determine the advance payment amounts) who are not
claimed on 2022 returns plus $3,000 times the number
of older children taken into consideration during the
reference year (to determine the advance payment
amounts) who are not claimed on 2022 returns. (In this
case, the reference year would be 2021, or if those data
are unavailable, 2020.) The age of the children for this
calculation would be based on their age at the end of
2022. The phaseout of the safe harbor would be
unchanged under the law in effect for 2021.
These provisions would apply to the child credit claimed
on 2022 returns, and advance payments issued in 2022.
Establishment of
Monthly Child
Tax Credit with
Advance Payment
Through 2025
The bill would temporarily suspend the child credit as
amended under Section 24 (including the changes above)
and temporarily replace it for 2023-2025 with a new
monthly child credit under Section 24A and a new advance
payment program.b
Broadly, these changes would result in a monthly credit
amount that for many taxpayers would be similar to the
benefit they could receive in 2021, all else being equal.
Many of the major changes described below would affect
the administration of the benefit, allowing eligibility to be
determined based on who could claim a child on a
month-by-month basis (as opposed to an annual basis
under current law).
Credit Amount
The credit amount that a taxpayer would be eligible for
in a given year would equal the sum of their monthly
credit allowances for that year. Specifically, the total
benefit a taxpayer would be eligible to receive in a given
year would generally be based on the number of months
a taxpayer had a “specified child” (defined subsequently),
their annual income (subject to a lookback, defined
subsequently), and their filing status.
The maximum monthly credit allowance per child would
be $300 for a specified child 0-5 years old (a young child)
and $250 for a specified child 6-17 years old (an older
child).c
The monthly credit allowance would be phased out
based on annual income in a similar manner as the annual
child credit is in 2021, except the phaseout amount
would be allocated on a monthly basis. In other words,
based on annual income, an annual phaseout amount
would first be calculated and then divided by 12 to
determine a monthly phaseout amount. This monthly
amount would then be subtracted from the maximum
monthly credit allowance amount.
As with the child credit in 2021 (and in 2022 under this
bill), the monthly benefit amount would be subject to up
to two phaseouts, depending on the taxpayer’s annual
income. Specifically, the maximum monthly credit
allowance would be subject to an initial phaseout if a
taxpayer’s annual income was above an initial threshold.
For taxpayers with income above a secondary threshold,
the credit would be subject to an additional phaseout.
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The initial threshold would be $112,500 for single and
head of household filers and $150,000 for married joint
filers. The secondary threshold would be $200,000 for
single filers, $300,000 for head of household filers, and
$400,000 for married joint filers. For taxpayers with
income between the initial and secondary threshold, the
credit amount could not be reduced below $167 per
month per child (annualized, this amount equals $2,000).
For both the initial and secondary phaseouts, annual
income would be defined as the lowest income of the
current year and the preceding two years. For most
taxpayers, income for the phaseouts would equal their
adjusted gross income (AGI).d
The maximum monthly credit allowance amount and the
initial threshold would be annually adjusted for inflation
(occurring since 2020), rounded to the nearest $10 and
$5,000, respectively.
Eligibility
Taxpayers would be eligible for a monthly credit
allowance for each “specified child” they had for that
month. A specified child with respect to a taxpayer for a
given month would need to fulfill various eligibility
requirements, including (1) sharing the same principal
place of abode as the taxpayer for more than half the
month; (2) being under 18 as of the end of the year; (3)
receiving uncompensated care from the taxpayer in that
month; and (4) being a U.S. citizen, national, or resident
alien for tax purposes. In cases where a child would be
the specified child of more than one taxpayer, tiebreaker
rules would apply. Broadly, these rules would prioritize
the claim of parents over nonparents and relatives over
nonrelatives.
Taxpayers would need to furnish taxpayer identification
numbers (e.g., SSNs and ITINs) for themselves and any
specified children.
Advance Payments
The monthly credit allowances would be advanced based
on the most recent data available to the Treasury
Secretary, including data from the most recent tax
return or, if unavailable, data from the prior-year return.
The provision would also allow the use of data that had
been provided via an “alternative mechanism” (e.g., a
nonfiler portal).
Presumptive Eligibility
In cases where a taxpayer had established a “period of
presumptive eligibility” with respect to a specified child,
the child would be considered the specified child of the
taxpayer for any month during this period. (A taxpayer
who elected to receive their payment as a lump sum
with their tax return would not be prevented from
establishing a period of presumptive eligibility.)
As a result of presumptive eligibility, taxpayers generally
would not need to repay any monthly child credit
allowances received during this period (except in cases
of fraud or reckless and intentional disregard of rules
and regulations).e
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A period of presumptive eligibility for a specified child
would be established in a manner prescribed by the
Secretary.f (To the extent practicable, a period of
presumptive eligibility would automatically be established
for a parent upon the birth of the child.)
A taxpayer who established presumptive eligibility for a
specified child under the guidelines established by the
Secretary would need to express a reasonable
expectation that the child would be their specified child
for at least three consecutive months.
Once a period of presumptive eligibility began, it would
end generally at the earliest of (1) the Secretary
determining the taxpayer committed fraud or
intentionally disregarded the rules when establishing
presumptive eligibility; (2) upon notice from the
Secretary that the period was suspended or ended
(including if there was a dispute between taxpayers over
who could claim the child for a given month—i.e.,
“competing claims”); or (3) a year after the period was
established. The Secretary would provide notice to the
taxpayer when the period of presumptive eligibility was
ending.
In cases where a specified child of a taxpayer was taken
into account by more than one taxpayer for any given
month, the child would be the specified child with
respect to the taxpayer with the most recent
information on file except in cases where a taxpayer
submits information through the “specified alternative
mechanism.” When another taxpayer submitted such
information, the Secretary would be required to
establish procedures under which the Secretary
“expeditiously adjudicates the taxpayer’s competing
claims of presumptive eligibility with respect to the same
child.”
Grace Period/Hardship
In cases where there was failure or delay in establishing a
period of presumptive eligibility, there would be a “grace
period” payment of up to three months of credit
allowances (except in cases of fraud or intentional
disregard). There would be only one automatic grace
period allowed per taxpayer every 36 months.
In cases where there was failure or delay in establishing a
period of presumptive eligibility “due to domestic
violence, serious illness, natural disaster, or any other
hardship,” there would be a hardship payment of up to
six months of credit allowances. There would no
limitation on how often a taxpayer could claim a
hardship payment.
Offset
The advance payments of the child credit would
generally be exempt from offset for certain past-due
debts the recipient owes (including past-due child
support). However, the portion of the payments claimed
on income tax returns would be subject to offset.
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Online Portal
The Secretary would establish an online portal where
taxpayers could elect to begin or end advance payments,
and provide information relevant in determining eligibility
for and the amount of advance payments.
Territories
The provision would direct the Secretary of the
Treasury to make payments to each territory, with the
exception of Puerto Rico, for the total cost of providing
the child tax for 2023 through 2025 to their territorial
residents. Residents of Puerto Rico would generally
claim the credit directly from the IRS.
Refundable Child
Tax Credit After
2025
Under current law, beginning in 2026 the child credit is
scheduled to revert to levels in effect prior to P.L. 11597. (The most recent year these levels were in effect
was in 2017.) In other words, beginning in 2026 the
credit is scheduled to equal a maximum of $1,000 per
qualifying child. A qualifying child in 2026 would generally
be a dependent child 0-16 years old.
The maximum amount of the refundable portion of the
credit—the amount that can exceed income taxes owed
and which is often referred to as the additional child tax
credit or ACTC—is scheduled to be $1,000 per
qualifying child beginning in 2026. The ACTC would
generally phase in based on earned income for taxpayers
with more than $3,000 of earned income.g Specifically,
for every dollar of earned income over $3,000 the credit
amount would increase by 15 cents (a 15% phase-in rate)
up to the maximum ACTC of $1,000 per qualifying child.
The credit would begin to phase out when income
exceeded $110,000 for married joint filers and $75,000
for unmarried taxpayers (e.g., head of household).
Taxpayers would need to provide a taxpayer
identification number (e.g., an SSN or ITIN) for their
qualifying children in order to claim the credit.
This provision would modify current law beginning in
2026 by making the credit “fully refundable.” Specifically,
for taxpayers with a principal place of abode of the
United States for more than half the year, the formula(s)
for calculating the child credit amount would be
eliminated.g Hence, the credit would be the same
amount per child for low- and moderate-income
taxpayers, irrespective of their income. (Higher-income
taxpayers would still be subject to a phaseout of the
credit, as scheduled to be in effect beginning in 2026.)
Full refundability would also be available to taxpayers
who are residents of Puerto Rico.
Under this provision, the advance payment program of
the credit would no longer be in effect beginning in 2026.
For background, see
CRS Report R46900, The
Child Tax Credit: Frequently
Asked Questions (FAQs) About
the Child Credit for 2021 as
Expanded by the American
Rescue Plan Act of 2021
(ARPA; P.L. 117-2), by Margot
L. Crandall-Hollick.
CRS Report R45124, The
Child Tax Credit: Legislative
History, by Margot L.
Crandall-Hollick.
CRS Insight IN11752, The
Impact of a “Fully Refundable”
Child Tax Credit, by Margot L.
Crandall-Hollick.
CRS Insight IN11656, The
Child Tax Credit: How Would
the Biden Administration’s
Proposed American Families
Plan Change the Child Tax
Credit?, by Margot L.
Crandall-Hollick.
Part 2—Child and Dependent Care Tax Credit
Certain
Improvements to
the Child and
Dependent Care
ARPA (P.L. 117-2) temporarily increased (for 2021) the
child and dependent care tax credit (CDCTC) for many
taxpayers with qualifying child and dependent care
expenses. Specifically, the law increased the maximum
credit rate and maximum amount of qualifying expenses
Congressional Research Service
For background, see
CRS Insight IN11645, The
Child and Dependent Care Tax
Credit (CDCTC): Temporary
Expansion for 2021 Under the
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Credit Made
Permanent
used to calculate the credit amount. In combination,
these changes increased the maximum amount of the
CDCTC in 2021 from a pre-ARPA level of $2,100 to
$8,000, depending on expenses and income.
The bill would permanently extend the changes to the
child and dependent care credit enacted on a temporary
basis for 2021 by the ARPA (P.L. 117-2).
Specifically, the provision would permanently expand the
child and dependent care credit by (1) modifying the
credit formula and (2) making the credit refundable.
With respect to the credit formula, the CDCTC credit
amount is calculated by multiplying a credit rate by a
taxpayer’s amount of qualifying expenses (subject to a
cap). Qualifying expenses include expenses for the care
of a child under 13 years old or other dependent who is
not able to care for themselves (i.e., “a qualifying
individual”) that are incurred so the taxpayer can work
(or look for work).
Under the provision, taxpayers with less than $125,000
of income (an increase from the pre-ARPA level of
$15,000) would have a credit rate of 50% (an increase
from the pre-ARPA level of 35%) of expenses. This 50%
credit rate would gradually phase down as a taxpayer’s
income increased, reaching 20% for a taxpayer with
$183,000 of income. For those with more than $183,000
of income and up to $400,000 of income, the credit rate
would then remain at 20%, gradually falling to zero when
income exceeds $438,000. As a result, those taxpayers
with income over $438,000 would not be eligible for the
credit. These thresholds are the same across all tax filing
statuses.
The bill would also increase the cap on qualifying
expenses to $8,000 for taxpayers with one qualifying
individual and $16,000 for taxpayers with two qualifying
individuals (an increase from the pre-ARPA levels of
$3,000 and $6,000, respectively). (Note that the existinglaw earned income limitation, which caps qualifying
expenses at a taxpayer’s earned income [or the earned
income of the lower-earning spouse], is unchanged by
ARPA.)
In combination, these changes would increase the
maximum amount of the CDCTC from a pre-ARPA level
of $2,100 to $8,000, depending on expenses and income.
The $8,000 and $16,000 qualifying expense caps and the
$125,000 threshold at which the credit rate begins to
phase out would be annually adjusted for inflation
beginning in 2022.
The provision would also make the credit refundable for
taxpayers with a principal place of abode of the United
States for more than half the year. (Taxpayers who did
not meet this requirement would be eligible to claim this
benefit as a nonrefundable credit.) By making the credit
refundable, the law would effectively expand eligibility to
many lower-income taxpayers who have little to no
income tax liability.
American Rescue Plan Act of
2021 (ARPA; P.L. 117-2), by
Margot L. Crandall-Hollick.
Congressional Research Service
CRS Report R44993, Child
and Dependent Care Tax
Benefits: How They Work and
Who Receives Them, by
Margot L. Crandall-Hollick.
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The provision would direct the Treasury to make
payments to Puerto Rico, American Samoa, and mirrorcode territories for the cost of providing the CDCTC
(or analogous benefit) to their territorial residents.
Increase in
Exclusion for
EmployerProvided
Dependent Care
Assistance Made
Permanent
The bill would permanently extend the temporary
changes to the exclusion for employer-provided
dependent care assistance that were originally enacted
on a temporary basis for 2021 by the ARPA (P.L. 117-2).
Specifically, the provision would permanently increase
the maximum amount of qualifying child care expenses
that eligible taxpayers could exclude from their income
to $10,500 (from a pre-ARPA level of $5,000). This
amount would be annually adjusted for inflation
beginning in 2022.
For background, see
CRS In Focus IF11597,
Potential Impact of COVID-19
on Dependent Care Flexible
Spending Arrangements
(FSAs), by Conor F. Boyle
and Margot L. CrandallHollick.
Part 3—Supporting Caregivers
Payroll Credit for
Certain Wages
Paid to Child
Care Workers
This provision would create a new refundable payroll tax
credit for eligible child care employers. The credit would
equal 50% of up to $2,500 of qualified child care wages
per employee per quarter. Qualified child care wages are
wages above a minimum rate determined by the salary
for the federal government GS-3 Step 1 (including
locality pay) for the location where the services are
provided. Employees must provide either child care or
support services to the employer. Additionally,
employees cannot meet the definition of a highly
compensated employee (in 2021, receive compensation
above $130,000 annually or $32,500 per quarter). The
$2,500 quarterly cap would be adjusted for inflation
starting in 2023.
Eligible child care employers would be employers who
operate eligible child care facilities, which are facilities
that have been certified as a Department of Health and
Human Services Participating Child Care Provider. Taxexempt employers would be eligible for the credit;
government employers generally would not. Employers
could not receive a double benefit, meaning wages used
to compute this credit generally could not be taken into
account for the purposes of determining other tax
credits or in connection with other COVID-19 pandemic
relief measures.
The credit would be claimed against the employer’s
share of Medicare payroll taxes (1.45% of wages paid)
and the equivalent amount of Railroad Retirement Tax
Act (RRTA) taxes. The credit would be refundable for
taxpayers whose credit amount exceeds their payroll tax
liability, and can be advanced.
Credit for
Caregiver
Expenses
The provision would create a new temporary
nonrefundable tax credit of up to $2,000 for eligible
taxpayers with qualifying caregiving expenses. With
respect to the credit formula, the caregiver credit
amount would be calculated by multiplying a credit rate
by the amount of qualifying expenses (subject to a cap).
The credit rate would be 50% for taxpayers with income
of $75,000 or less. The credit rate would be reduced by
one percentage point for every $2,500 (or fraction
thereof) above $75,000. Hence, the credit rate (and the
Congressional Research Service
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credit amount) would be zero for taxpayers with more
than $197,500 of income. Caregiver expenses would be
subject to a $4,000 per taxpayer cap.
Eligible taxpayers would include taxpayers with one or
more qualified care recipients. A qualified care recipient
would include the taxpayer’s spouse or other relative of
the taxpayer who has been certified by a medical
professional as having long-term care needs (as specified
for given age ranges) and who lives in a personal
residence (not an institutional care facility). Individuals
with long-term care needs generally would include those
who cannot independently engage in, or require
substantial supervision for certain activities of daily living.
Qualifying caregiving expenses would include expenses
the taxpayer incurs for goods, services, and supports
that assist the qualified care recipient with accomplishing
activities of daily living, as specified.
Amounts claimed as qualifying caregiving expenses would
exclude amounts claimed for other tax benefits, including
the child and dependent care credit, the exclusion for
child and dependent care expenses, the medical expense
deduction (an itemized deduction), and health savings
accounts (HSAs).
This temporary tax provision would be in effect from
2022 through 2025.
Part 4—Earned Income Tax Credit
Certain
Improvements to
the Earned
Income Tax
Credit Made
Permanent
ARPA (P.L. 117-2) temporarily increased (for 2021) the
earned income tax credit (EITC) for workers without
qualifying children (often referred to as the “childless
EITC”). Specifically, the law modified several parameters
of the credit that in combination would triple the
maximum amount of the childless EITC from about $500
to about $1,500 per taxpayer. The law also temporarily
reduced the eligibility age for young workers and
eliminated the age limit for older workers.
The bill would permanently extend the changes to the
childless EITC enacted on a temporary basis for 2021 by
the ARPA.
Regarding eligibility age, the provision would expand
eligibility for the EITC for individuals with no qualifying
children—sometimes referred to as the “childless”
EITC—by reducing the minimum eligibility age from 25
to 19 for most workers. In other words, this change
would allow most eligible workers ages 19 to 24 to claim
the childless EITC. For students who are attending
school at least part-time, the age limit would be reduced
from 25 to 24.h For former foster children and youth
who are homeless, the minimum age would be reduced
from 25 to 18. The provision would also eliminate the
upper age limit, so workers aged 65 and older would be
eligible.
Regarding the credit amount, the provision would
increase the childless EITC by increasing the earned
income amount (the minimum earned income necessary
to receive the maximum credit amount) and phaseout
threshold amount (the highest income level at which
Congressional Research Service
For background, see
CRS Insight IN11610, The
“Childless” EITC: Temporary
Expansion for 2021 Under the
American Rescue Plan Act of
2021 (ARPA; P.L. 117-2), by
Margot L. Crandall-Hollick.
CRS Report R43805, The
Earned Income Tax Credit
(EITC): How It Works and
Who Receives It, by Margot L.
Crandall-Hollick, Gene Falk,
and Conor F. Boyle.
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taxpayers receive the maximum credit amount before it
begins to phase out) to $9,820 and $11,610, respectively,
while also doubling the phase-in and phaseout rates from
7.65% to 15.3%. Combined, these changes would
effectively triple the maximum EITC for childless
workers. (Like other aspects of the EITC under current
law, these dollar amounts would be indexed for
inflation.)
The provision also includes a permanent earned income
lookback (a similar provision was temporarily enacted
for 2021 under ARPA). Under this provision, if a
taxpayer’s earned income in a given year was less than
their earned income in the preceding year, the taxpayer
could elect to use the preceding year’s earned income in
calculating their EITC.
Funds for
Administration of
Earned Income
Credits in the
Territories
Under current law, residents of the territories may be
eligible to receive an EITC under their own territorial
tax law. (These territories include Puerto Rico,
American Samoa, the Commonwealth of the Northern
Mariana Islands [CNMI], the United States Virgin Islands
[USVI], and Guam.)
These territorial EITCs are paid by the local territorial
government, with the Treasury making aggregate
payments for the total cost of these benefits. (Territorial
residents are generally ineligible for the federal EITC.)
From 2021 to 2025, the Treasury is also required to pay
to territorial governments amounts that these
governments spend on education efforts regarding the
EITC—up to $1 million per year for Puerto Rico, and up
to $50,000 per year for the other territories.
The provision would permanently provide additional
funding for territorial governments to cover
administrative expenses of their territorial EITCs—up to
$4 million per year for Puerto Rico and up to $200,000
per year for the other territories.
This provision would apply to administrative expenses
incurred beginning in 2021.
Part 5—Expanding Access to Health Coverage and Lowering Costs
Improve
Affordability and
Reduce Premium
Costs of Health
Insurance for
Consumers
The provision would expand eligibility for and the
amount of the premium tax credit (PTC) by modifying
the income eligibility criteria and credit formula.
Regarding income eligibility, the provision would
permanently eliminate the phaseout for households with
annual incomes above 400% of the federal poverty level
(FPL).
Regarding the formula, the provisions would
permanently establish the percentage of annual income
that eligible households may be required to contribute
toward the premium. The percentages would range from
0.0% to 8.5% of household income, with higher-income
groups subject to larger percentages, as specified.
For background, see
Modification of
EmployerSponsored
Coverage
Under current law, individuals who are eligible for
minimum eligible coverage from their employer are
generally ineligible for the PTC. An exception is provided
to an individual whose employer-provided health
For background, see
Congressional Research Service
CRS Report R44425, Health
Insurance Premium Tax Credit
and Cost-Sharing Reductions,
by Bernadette Fernandez.
CRS Report R44425, Health
Insurance Premium Tax Credit
38
Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
Affordability Test
in Health
Insurance
Premium Tax
Credit
benefits are unaffordable or inadequate. In 2021,
coverage is considered unaffordable if an employee’s
share of the premium for self-only coverage under the
plan exceeds 9.83% of the employee’s household
income.
This provision would reduce the percentage of
household income used to determine affordability of
eligible employer-sponsored plans and qualified small
employer health reimbursement arrangements from
9.83% to 8.5%.
Hence, more households with unaffordable employer
health benefits could be eligible for the PTC.
and Cost-Sharing Reductions,
by Bernadette Fernandez.
Treatment of
Lump-Sum Social
Security Benefits
in Determining
Household
Income
The provision would exclude from household income—
for purposes of determining PTC eligibility and amount
for a given year—any lump-sum Social Security benefit
payment attributable to a prior year. This provision
would allow taxpayers to elect to include as part of their
income the excludable amount, as specified.
For background, see
Temporary
Expansion of
Health Insurance
Premium Tax
Credits for
Certain LowIncome
Populations
For taxable years beginning in 2022 through the
termination date, the provision would expand PTC
eligibility for lower-income households and make other
temporary changes. The termination date would be the
later of (i) January 1, 2025, or (ii) the date on which the
Secretary of Health and Human Services makes a written
certification that the Secretary of Health and Human
Services has fully implemented the program described in
Section 1948 of the Social Security Act (relating to the
Federal Medicaid program), if this program was enacted
(Section 1948 of the Social Security Act is part of
another reconciliation proposal and is not in effect under
current law).
The provision would temporarily disallow income
criteria to be used to determine PTC eligibility. For
households with incomes not exceeding 138% of FPL,
the provision would temporarily disregard the
affordability test applicable to eligible employersponsored plans and qualified small employer health
reimbursement arrangements for PTC eligibility
purposes.
For households with incomes less than 200% of FPL, the
provision would temporarily cap the dollar amount such
households would pay back in advanced PTC (APTC)
payments that were provided in excess.
For a household that would not be required to file a tax
return except to reconcile APTC payments, the
provision would temporarily disallow the requirements
to file a return and pay back excess APTC if an exchange
projected such household’s income would not exceed
138% of FPL.
For applicable large employers of employees with
household incomes projected to not (or that do not)
exceed 138% of FPL, the provision would temporarily
disallow the requirement that such employers pay a
penalty if at least one full-time employee enrolls in an
For background, see
Congressional Research Service
CRS Report R44425, Health
Insurance Premium Tax Credit
and Cost-Sharing Reductions,
by Bernadette Fernandez.
CRS Report R44425, Health
Insurance Premium Tax Credit
and Cost-Sharing Reductions,
by Bernadette Fernandez.
CRS Report R45455, The
Affordable Care Act’s (ACA’s)
Employer Shared Responsibility
Provisions (ESRP), by Ryan J.
Rosso.
39
Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
exchange plan and is eligible for a PTC or cost-sharing
reduction (CSR).
Ensuring
Affordability of
Coverage for
Certain LowIncome
Populationsi
For plan years 2023 and 2024, the provision would
establish a maximum income eligibility threshold at 400%
of FPL applicable to CSRs.
For applicable months in 2022, the provision would treat
households with incomes below 138% of FPL as having
income at 100% of FPL for CSR eligibility and subsidy
purposes.
For households with incomes below 138% of FPL who
are eligible for CSRs during plan years 2023 and 2024,
the provision would reduce cost-sharing requirements
to increase the actuarial value to 99% of the exchange
plans in which such households enroll. The Secretary of
Health and Human Services (HHS Secretary) would
make payments to plans that provide additional costsharing assistance.
For households with incomes below 138% of FPL who
are not otherwise eligible for specified governmentsponsored minimum essential coverage, the provision
would establish a special enrollment period (SEP) to
allow such households to enroll in exchange plans to
which CSRs apply. The SEP would apply to applicable
months occurring during the period beginning on January
1, 2022, and ending on December 31, 2024.
For households with incomes below 138% of FPL who
are eligible for CSRs, exchange plans would provide
enhanced benefits to such households during plan year
2024. Applicable plans would provide essential health
benefits (EHBs) offered through silver-tier plans and
additional benefits without cost-sharing (which are not
otherwise provided as part of EHBs): non-emergency
medical transportation services and Medicaid family
planning services and supplies. The HHS Secretary would
make payments to plans that provide the additional
benefits.
For federally administered exchanges, the provision
would require the HHS Secretary to conduct consumer
outreach and education activities to inform specified
individuals about the availability of exchange plans and
financial assistance for such coverage.
For background, see
Establishing a
Health Insurance
Affordability
Fundi
This provision would establish the Improve Health
Insurance Affordability Fund (“Fund”) to provide funding
to the 50 states and the District of Columbia beginning
on January 1, 2023. States would be required to use
Fund allocations to provide reinsurance payments to
individual health insurance plans, or provide other
assistance to reduce out-of-pocket costs for individuals
enrolled in individual exchange plans and Basic Health
Program (BHP) plans. The provision specifies the
processes for Fund applications, approvals, oversight
including approval revocations, and calculation of state
allocations. For 2023 and 2024, states that have not
implemented the ACA Medicaid expansion could not
apply for a Fund allocation. Instead, the Administrator
would provide reinsurance payments to individual health
For background, see
CRS Report R44760, State
Innovation Waivers: Frequently
Asked Questions, by Ryan J.
Rosso.
Congressional Research Service
CRS Report R44425, Health
Insurance Premium Tax Credit
and Cost-Sharing Reductions,
by Bernadette Fernandez.
CRS Report R44065,
Overview of Health Insurance
Exchanges, by Vanessa C.
Forsberg.
40
Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
insurance plans in non-expansion states during those two
years.
As a condition of establishing a BHP for plan years
beginning on or after January 1, 2023, states would be
required to submit to the HHS Secretary information
related to plans receiving reinsurance payments provided
through the Fund. The HHS Secretary would
incorporate such information in the calculation of BHP
payments to states.
Special Rule for
Individuals
Receiving
Unemployment
Compensation
For taxable years 2021 through 2025, the provision
would deem individuals who receive unemployment
compensation for any week during a given year to have
met the PTC income eligibility criteria. The provision
would temporarily disregard any household income
above 150% of FPL.
For background, see
Permanent
Credit for Health
Insurance Costs
For the health coverage tax credit (HCTC), the
provision would strike the sunset date of January 1,
2022, to authorize it on a permanent basis. The
provision would increase the HCTC’s subsidy rate to
80% of the premium for qualifying health plans, for
coverage months beginning after December 31, 2021.
For background, see
CRS Report R44392, The
Health Coverage Tax Credit
(HCTC): In Brief, by
Bernadette Fernandez.
CRS Report R44425, Health
Insurance Premium Tax Credit
and Cost-Sharing Reductions,
by Bernadette Fernandez.
Part 6—Pathways to Practice Training Programsj
Establishing Rural
and Underserved
Pathway to
Practice Training
Programs for
PostBaccalaureate
Students and
Medical Students
Funding for the
Rural and
Underserved
Pathway to
Practice Training
Programs for
PostBaccalaureate
Students and
Medical Students
The bill would establish a new “Rural and Underserved
Pathway to Practice Training Program for PostBaccalaureate and Medical Students.”
Under the provision, the Secretary of Health and Human
Services (HHS Secretary) would award not later than
October 1, 2023, “Pathway to Practice” medical
scholarship vouchers to qualified students, as specified,
for the purpose of increasing the number of physicians
from disadvantaged backgrounds practicing in rural and
underserved communities. The new section would
authorize the HHS Secretary to award, on an annual
basis, vouchers to not more than 1,000 qualifying
students. Various eligibility requirements for students
and educational institutions would apply.
HHS could begin making annual awards in 2023.
For background, see
CRS Infographic IG10015,
Health Professional Shortage
Areas (HPSAs), by Elayne J.
Heisler.
CRS Report R44970, The
National Health Service Corps,
by Elayne J. Heisler.
CRS Report R43571, Federal
Student Loan Forgiveness and
Loan Repayment Programs,
coordinated by Alexandra
Hegji.
The bill would create a new refundable tax credit for
qualifying educational institutions—certain medical
schools or providers of a post-baccalaureate medical
education and training—to offset amounts “paid or
incurred” by the institution for each eligible student who
receives a Rural and Underserved Pathway to Practice
medical scholarship voucher.
This credit would be a financing mechanism to fund
these scholarships—qualifying educational institutions
provide these scholarships and the federal government
reimburses them with a tax credit or, if they have little
to no income tax liability, as in the case of a qualifying
educational institution that is federally tax-exempt, a
direct payment (in the form of a tax refund).
This provision would go into effect for the taxable year
ending after the date of enactment.
Congressional Research Service
41
Tax Provisions in the “Build Back Better Act"
Section Title
Description
Establishing Rural
and Underserved
Pathway to
Practice Training
Programs for
Medical
Residents
Under current law, Medicare pays hospitals with an
approved medical residency program for the direct and
indirect costs of a medical residency training program.
Medicare payments to hospitals are not open-ended.
Rather, Medicare’s Graduate Medical Education (GME)
payments to a hospital in a given year are subject to a
hospital-specific full-time equivalent (FTE) limit or “cap.”
The provision would increase the GME FTE cap by the
number of FTEs an applicable hospital trains under the
Rural and Underserved Pathway to Practice Training
Programs for Medical Residents during a cost-reporting
year beginning on or after October 1, 2026.
Administrative
Funding of the
Rural and
Underserved
Pathway to
Practice Training
Programs for
PostBaccalaureate
Students, Medical
Students, and
Medical
Residents
The provision would transfer $6 million in equal
amounts from the Hospital Insurance (HI) Trust Fund,
which finances Medicare Part A, and the Supplementary
Medical Insurance (SMI) Trust Fund, which finances
Medicare Parts B and D, to administer the (1) Rural and
Underserved Pathway to Practice Training Program for
Post-Baccalaureate and Medical Students, and (2) Rural
and Underserved Pathway to Practice Training Programs
for Medical Residents.
CRS Resources
For background, see
CRS In Focus IF10960,
Medicare Graduate Medical
Education Payments: An
Overview, by Marco A.
Villagrana.
CRS Report R44376, Federal
Support for Graduate Medical
Education: An Overview,
coordinated by Elayne J.
Heisler.
Part 7—Higher Education
Credit for Public
University
Research
Infrastructure
The provision would create a new tax credit for
donations to public educational institutions for research
infrastructure, in lieu of claiming the charitable
contribution deduction for these amounts.
Specifically, taxpayers would be able to claim a credit
equal to 40% of cash contributions for a qualifying project
of a certified educational institution, subject to credit
allocation limits. This tax credit would be part of the
general business credit.
The Secretary of the Treasury, in consultation with the
Secretary of Education, would establish a program to
designate a group of certified educational institutions and
allocate credit amounts for their qualifying projects.
These designations would be based on the institution’s
expected expansion in science, technology, engineering
and math (STEM) research, ensuring consideration for
smaller institutions (those with fewer than 12,000 full
time students). A qualifying project would be defined as a
project to purchase, construct, or improve research
infrastructure property. Eligible institutions would
generally be limited to state colleges and universities
(i.e., “public universities”).
Certified educational institutions would be awarded a
credit allocation, with qualified cash contributions not to
exceed 250% of this allocation. A certified educational
institution’s annual allocation could not exceed $50
million per year. Total allocations would be limited to
$500 million per year for 2022 through 2026 (inclusive).
Congressional Research Service
For background, see
CRS Report R45922, Tax
Issues Relating to Charitable
Contributions and
Organizations, by Jane G.
Gravelle, Donald J. Marples,
and Molly F. Sherlock.
42
Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
For example, a certified educational institution could be
allocated $20 million in credits for a qualifying project.
The institution could then designate up to $50 million
(250% of $20 million) in qualifying cash contributions for
that project. These qualifying cash contributions would
then generate up to $20 million (40% of $50 million) in
credits for taxpayers.
The Treasury Secretary would be required to publicly
disclose credit applicants (i.e., certified institutions) and
their associated credit allocations. Certified institutions
would be required to publicly disclose donors and the
amount of their contributions designated for qualifying
projects for this tax credit.
No new credits could be allocated after 2026.
Modification of
Excise Tax on
Investment
Income of Private
Colleges and
Universities
Under current law, colleges and universities with
endowments of at least $500,000 per student are subject
to a 1.4% excise tax on net investment income (Section
4968). This provision would phase out this excise tax for
institutions providing qualifying aid awards, starting in
2022. The excise tax would be reduced by the following
amount: [(qualified aid awards provided to first-time, full
time undergraduate students - 20% of tuition and fees
from first-time, full time undergraduate students) / 13%
of aggregate undergraduate tuition and fees], but not
reduced below zero. Taxpayers seeking an excise tax
reduction would be required to meet certain reporting
requirements to provide information on student loans.
The provision would also modify the $500,000 per
student threshold to be adjusted for inflation after 2022.
For background, see
Treatment of
Federal Pell
Grants for
Income Tax
Purposes
Under current law, the portion of a scholarship
(including a Pell Grant) that pays for qualified tuition and
fees is generally excludable from income and hence not
taxable.j In contrast, the portion of a scholarship that
pays for room and board and other living expenses is
taxable. Pell Grants may be used to pay for tuition and
fees, room and board, and other educational expenses.
In addition, under current law, when calculating an
education tax credit, taxpayers must reduce their crediteligible education expenses by any amounts received as
tax-free scholarships. Since the amount of an education
tax credit depends on expenses incurred for tuition and
fees, then all else being equal, receipt of a tax-free
scholarship reduces the amount of credit-eligible
expenses, and may reduce the amount of their education
credit.k
This provision would modify the current exclusion for
scholarship income such that any amount of a Pell
Grant—not just the portion that pays for qualified
tuition and fees—would be excluded from income, and
hence not be taxable. In addition, under this provision,
expenses eligible for education tax credits would not be
reduced by any amount of a Pell Grant.
For background, see
Under current law, the American Opportunity Tax
Credit (AOTC) cannot be claimed for a student
convicted of a federal or state felony drug possession or
distribution offense. This lifetime prohibition generally
For background, see
Repeal of Denial
of American
Opportunity Tax
Credit on Basis
Congressional Research Service
CRS Report R44293, College
and University Endowments:
Overview and Tax Policy
Options, by Molly F. Sherlock
et al.
CRS Report R45418, Federal
Pell Grant Program of the
Higher Education Act: Primer,
by Cassandria Dortch.
CRS Report R41967, Higher
Education Tax Benefits: Brief
Overview and Budgetary
Effects, by Margot L.
Crandall-Hollick.
CRS Report R42561, The
American Opportunity Tax
Credit: Overview, Analysis, and
Policy Options, by Margot L.
Crandall-Hollick.
CRS Report R42561, The
American Opportunity Tax
43
Tax Provisions in the “Build Back Better Act"
Section Title
Description
of Felony Drug
Conviction
applies beginning with the year in which the conviction
occurs.
The provision would repeal this ban, allowing the AOTC
to be claimed for an otherwise eligible student convicted
of a felony drug offense.
CRS Resources
Credit: Overview, Analysis, and
Policy Options, by Margot L.
Crandall-Hollick.
Source: CRS based on Subtitle H, Budget Reconciliation Legislative Recommendations Relating to Social Safety
Net.
Notes: Provisions are effective in 2022 unless otherwise noted. The changes that would be made by the
provision are permanent, unless otherwise noted. “Section” citations refer to the section within the Internal
Revenue Code (IRC), 26 U.S.C., unless otherwise noted.
a. The one exception is the maximum amount of the refundable portion of the credit that was originally
included in P.L. 115-97 (but is not in effect in 2021). The maximum amount of the refundable portion of the
child credit as enacted under P.L. 115-97 was $1,400 per child, rounded to the next lowest multiple of
$100. While this provision was in effect (2018-2020), inflation did not trigger an adjustment.
b. Under Section 24, taxpayers with a non-child credit eligible dependent (including older dependent children
and adult dependents) may claim a $500 nonrefundable tax credit for each of these other dependents. For
2023-2025, the proposal would create a similar benefit for taxpayers with non-child credit eligible
dependents under Section 24B. Unlike the $500 credit for other dependents under current law, the credit
under Section 24B would not be combined with the child credit when being phased out. In addition, it
would begin to phase out at a higher income level for head of household filers ($300,000 versus $200,000).
The $500 amount would be adjusted for inflation beginning in 2023, and taxpayers would be required to
furnish the taxpayer identification number of the dependent for whom they would claim the benefit.
c. The age of the child would generally be based on their age on the last day of the calendar year.
d. Income for purposes of phasing out the child credit is equal to Adjusted Gross Income (AGI) increased by
foreign earned income of U.S. citizens abroad, including income earned in Guam, American Samoa, the
Northern Mariana Islands, and Puerto Rico.
e. Other circumstances in which a taxpayer may need to pay back amounts include due to changes in income,
changes in marital status, change of principal place of abode, or other circumstances as described in
regulations or other guidance by the Secretary.
f.
A taxpayer could establish presumptive eligibility with the immediately preceding year’s tax return, or via
the online portal, or any other manner provided by the Secretary.
g. Under Section 24(d)(1)(B)(ii), taxpayers with three or more qualifying children can calculate the refundable
portion of the child credit—the additional child tax credit or ACTC—using an alternative formula. Under
this formula, the ACTC equals the difference in the employee’s share of Social Security taxes and Medicare
taxes (i.e., 7.65% of earned income) and their EITC, up to the maximum ACTC. The maximum ACTC in
2021 before ARPA was $1,400 per qualifying child and is currently scheduled to remain at that level from
2022 to 2025. Beginning in 2026, the maximum ACTC is scheduled to be $1,000 per qualifying child. In
most cases, the ACTC calculated under the earned income formula is greater than the ACTC calculated
under the alternative formula.
h. The law includes as part of the definition of a student someone carrying half or more of the normal full-time
workload for their program of study, as defined under Section 25A(b)(3).
i.
This provision is not identified as a revenue provision by the Joint Committee on Taxation. The description
is included here so as to have a complete description of provisions in “Part 5—Expanding Access to Health
Coverage and Lowering Costs.”
j.
JCT provides a combined revenue estimate for all Part 6-Pathway to Practice Training Program provisions.
Under current law, taxpayers are generally subject to tax on scholarship or fellowship income that is
considered compensation for services generally, unless specifically excluded by law. Statutory exceptions
include amounts received under the National Health Service Corps Scholarship Program and the Armed
Forces Health Professions Scholarship and Financial Assistance program. See Section 117(c)(2).
k. Under current law, taxpayers may elect to have a tax-free scholarship (including a Pell Grant) included in
income and hence subject to tax. This may increase a taxpayer’s education credit and lower their total tax
(or increase their refund).
Congressional Research Service
44
Tax Provisions in the “Build Back Better Act"
Table 5. Subtitle I: Responsibly Funding our Priorities
Section Title
Description
CRS Resources
Part 1—Corporate and International Tax Reforms
Subpart A—Increase in Corporate Tax Rate
Increase in
Corporate Rate
Prior to P.L. 115-97 (commonly referred to as the
“Tax Cuts and Jobs Act” or TCJA) corporate taxable
income was subject to a graduated rate structure with
a maximum rate of 35%. The TCJA enacted a flat 21%
corporate tax.
This provision would reintroduce a graduated rate
structure. The first $400,000 of taxable income would
be taxed at 18%; taxable income over $400,000 but
not over $5 million would be taxed at 21%; and
taxable income over $5 million would be taxed at
26.5%. Taxable income over $10 million would be
subject to an additional tax equal to 3% of the amount
over $10 million. The additional tax would be capped
at $287,000.
Qualified personal service corporate income would
not qualify for the graduated rate structure and would
be taxed at 26.5%.
Special rules would apply to certain taxpayers, such as
public utilities.
The provision would increase the 50% (for dividends
received from corporations that are less than 20%
owned by the recipient corporation) and 65% (for
corporations that are at least 20% owned and less
than 80% owned by the recipient corporation)
dividends-received deductions to 60% and 72.5%,
respectively.
For background, see
CRS Report RL34229,
Corporate Tax Reform: Issues
for Congress, by Jane G.
Gravelle.
CRS In Focus IF11809, Trends
and Proposals for Corporate Tax
Revenue, by Donald J. Marples
and Jane G. Gravelle.
Subpart B—Limitations on Deduction for Interest Expense
Limitations on
Deduction for
Interest Expense
Section 163(j) of the IRC limits interest deductions to
30% of earnings before interest and taxes (EBIT).
Before 2022, the income base is earnings before
interest, taxes, depreciation, and amortization
(EBITDA). Excess interest is carried forward. The
limit applies at the partnership or corporate level for
partnerships and Subchapter S corporations.
This provision adds an additional interest limitation
under Section 163(n). The share of interest deducted
by firms with operations in other countries is limited
to 110% of the allocated share of worldwide interest;
the allocated share is the same as the U.S. firm’s share
of worldwide EBITDA. This provision applies to firms
with an average excess interest of $12 million over
three years. This limit does not apply to small
businesses with average earnings over three years of
$25 million, partnerships, Subchapter S corporations,
real estate investment trusts (REITs), or regulated
investment companies (RICs)
The interest carryforward under Section 163(j) or
163(o), whichever applies the smaller limit, can be
carried forward for five years. The section 163(j) limit
applies at the partner or shareholder level for
partnerships and Subchapter S corporations.
Congressional Research Service
For background see
CRS Report R45186, Issues in
International Corporate
Taxation: The 2017 Revision
(P.L. 115-97), by Jane G.
Gravelle and Donald J.
Marples.
CRS In Focus IF11809, Trends
and Proposals for Corporate Tax
Revenue, by Donald J. Marples
and Jane G. Gravelle.
45
Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
Subpart C—Outbound International Provisions
Modifications to
Deduction for
Foreign-Derived
Intangible Income
and Global
Intangible LowTaxed Income
Current law imposes a minimum tax on global
intangible low taxed income (GILTI) of controlled
foreign corporations (CFCs), after allowing a
deduction for 10% of tangible assets and 50% of the
remainder. A deduction is also allowed for foreignderived intangible income (FDII) for 10% of tangible
assets and 37.5% of the remainder. These deduction
amounts for the remainder are scheduled to fall to
37.5% for GILTI and 21.875% for FDII after 2025.
With the current 21% tax rate, these deductions
result in a rate of 10.5% (13.125% after 2025) for
GILTI and 13.125% (16.4% after 2025) for FDII.
The combined GILTI and FDII deductions are limited
to taxable income and any unused deduction cannot
be carried back or forward.
This provision would accelerate the 37.5% deduction
for GILTI and a 21.875% deduction for FDII to 2022.
Given the new proposed corporate tax rate of 26.5%,
these deductions would result in a tax rate of
16.5625% for GILTI and 20.7% for FDII. The proposal
would allow amounts in excess of taxable income to
be deducted and increases net operating losses,
effectively allowing them to be carried forward.
Repeal of Election
for One-Month
Deferral in
Determination of
Taxable Year of
Specified
Corporations
Under current law, controlled foreign corporations
are generally required to have the same tax year as
the U.S. parent, but there is an election to begin the
tax year one month earlier. This provision would
repeal that election. It would apply to tax years
beginning after November 30, 2021.
Modifications of
Foreign Tax
Credit Rules
Applicable to
Certain Taxpayers
Receiving Specific
Economic Benefits
Under current law, a credit for foreign taxes paid
offsets U.S. tax on foreign-source income dollar for
dollar, whereas a deduction is less valuable. Dualcapacity taxpayers are taxpayers who receive a benefit
from a foreign government (such as a right to extract
oil). These taxpayers also sometimes pay higher taxes
that may not be distinguishable from payments for
benefits (such as royalties) that would be deductible.
Under this provision, taxes would only be creditable
up to the amount that would be paid under rules
generally applicable to corporations in that country,
and the excess would be deducted. This provision
would apply as of the date of enactment.
Modification to
Foreign Tax
Credit Limitations
Current law allows a credit for foreign taxes paid
(80% of foreign taxes can be credited for GILTI). The
credit is limited to U.S. tax on foreign-source income.
The code allocates a share of interest and head office
expenses of the U.S. parent company to foreignsource income, which reduces the limit. Any excess
credits are carried back one year and carried forward
10 years. This limit applies on an overall basis for all
countries (within separate overall limits, or baskets,
for GILTI, branch, passive, and general income). This
overall limit allows taxes in excess of the U.S. tax in
Congressional Research Service
For background see
CRS Report R45186, Issues in
International Corporate
Taxation: The 2017 Revision
(P.L. 115-97), by Jane G.
Gravelle and Donald J.
Marples.
CRS In Focus IF11809, Trends
and Proposals for Corporate Tax
Revenue, by Donald J. Marples
and Jane G. Gravelle.
For background see:
CRS Report R45186, Issues in
International Corporate
Taxation: The 2017 Revision
(P.L. 115-97), by Jane G.
Gravelle and Donald J.
Marples.
CRS In Focus IF11809, Trends
and Proposals for Corporate Tax
Revenue, by Donald J. Marples
and Jane G. Gravelle.
46
Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
high-tax countries to offset U.S. tax due in low- or notax countries.
This provision would impose the limit separately in
each county (referred to as a per-country limit). The
provision would also eliminate the branch basket,
eliminate allocation of interest and head office
expenses to foreign-source income, and allow excess
credits to be carried forward five years (with no
carryback). It would also modify the treatment of
certain foreign asset dispositions.
Foreign Oil and
Gas Extraction
Income and
Foreign OilRelated Income to
Include Oil Shale
and Tar Sands
Under current law, foreign oil and gas extraction
income is not taxed (although another section would
include this income in GILTI), and foreign oil-related
income (such as distribution) is included in GILTI. This
provision would amend the definition of these
incomes to include oil shale and tar sands.
For background, see
Modifications to
Inclusion of Global
Intangible LowTaxed Income
Current law imposes a minimum tax on global
intangible low taxed income (GILTI) of CFCs, after
allowing a deduction for 10% of tangible assets and
50% of the remainder (this percentage would be
reduced by the section described above). GILTI
(including profits and losses) is measured on an overall
basis, so that losses in one jurisdiction can offset
income in another. Any overall losses cannot be
carried forward. Foreign oil and gas extraction income
is not included in GILTI and not taxed.
This provision would provide for a per-country
measure of GILTI income and loss, reduce the
deduction for tangible assets to 5%, allow losses to be
carried forward for one year, and include foreign oil
and gas extraction income in GILTI. The reduction in
the 10% deduction for tangible assets does not apply
to the territories.
For background, see
Under current law, credits for foreign taxes paid on
GILTI are limited to 80% of these taxes. This
provision would increase the amount to 95%. It would
also provide that CFCs must have direct U.S.
shareholders and would apply special rules to foreignowned U.S. shareholders. The second provision would
be effective for tax years beginning after December
31, 2017.
For background, see
On adoption of the GILTI regime in 2017, dividends
from foreign corporations became deductible by
shareholders with a 10% interest beginning in 2018.
The GILTI regime and Subpart F, which taxes certain
easily shifted income at full rates, apply only to CFCs.
CFCs are 50% owned by U.S. shareholders, each with
at least 10% ownership. This provision would limit
dividend deductions by 10% shareholders to dividends
of CFCs. Foreign corporations that are not CFCs
could elect CFC status with the agreement of all U.S.
For background, see
Modifications to
Determination of
Deemed Paid
Credit for Taxes
Properly
Attributable to
Tested Income
Deduction for
Foreign-Source
Portion of
Dividends Limited
to Controlled
Foreign
Corporations, Etc.
Congressional Research Service
CRS Report R43128, Oil
Sands and the Oil Spill Liability
Trust Fund: The Definition of
“Oil” and Related Issues for
Congress, by Jonathan L.
Ramseur.
CRS Report R45186, Issues in
International Corporate
Taxation: The 2017 Revision
(P.L. 115-97), by Jane G.
Gravelle and Donald J.
Marples.
CRS In Focus IF11809, Trends
and Proposals for Corporate Tax
Revenue, by Donald J. Marples
and Jane G. Gravelle.
CRS Report R45186, Issues in
International Corporate
Taxation: The 2017 Revision
(P.L. 115-97), by Jane G.
Gravelle and Donald J.
Marples.
CRS In Focus IF11809, Trends
and Proposals for Corporate Tax
Revenue, by Donald J. Marples
and Jane G. Gravelle.
CRS Report R45186, Issues in
International Corporate
Taxation: The 2017 Revision
(P.L. 115-97), by Jane G.
Gravelle and Donald J.
Marples.
47
Tax Provisions in the “Build Back Better Act"
Section Title
Description
CRS Resources
shareholders. The provision would also largely reverse
the elimination of downward attribution where CFC
status could result from tracing ownership by a U.S.
corporation up through a foreign parent. Currently,
these downward attribution rules apply to a U.S.
person at least 10% controlled by a foreign person;
the revision would raise that share to 50%. These
provisions would apply to tax years beginning after
December 31, 2017.
Limitation on
Foreign Base
Company Sales
and Service
Income
Under current law, subpart F imposes current taxes
on certain income that is easily shifted, including
foreign base company sales and service income. This
income is earned in a jurisdiction where the product
or service is neither produced nor consumed (i.e., in
an intermediary). It applies to transactions with
related parties. This provision would limit the
definition of related parties to taxable units resident in
the United States. It also closes certain tax planning
techniques that allow U.S. shareholders to avoid tax.
For background, see
CRS Report R45186, Issues in
International Corporate
Taxation: The 2017 Revision
(P.L. 115-97), by Jane G.
Gravelle and Donald J.
Marples.
Subpart D—Inbound International Provisions
Modification to
Base Erosion and
Anti-Abuse Tax
Under current law, the base erosion and anti-abuse
tax (BEAT) provides for an alternative calculation of
tax by adding certain payments to related foreign
parties (such as interest and royalties) and taxing this
income at 10%. Payments for the cost of goods sold
are not included. BEAT does not allow tax credits,
including the foreign tax credit, except for a
temporary allowance of the research credit along with
80% of the low-income housing credit and two energy
credits. After 2025, the rate will rise to 12.5% and no
credits will be allowed.
This provision would raise the tax rate to 12.5% in
2024 and 2025, and 15% after 2025. Tax credits would
be allowed. The base would also include payments to
foreign related parties for inventory that is required
to be capitalized (such as inventory to produce
tangible property) and payments for inventory in
excess of cost.
For background, see
CRS Report R45186, Issues in
International Corporate
Taxation: The 2017 Revision
(P.L. 115-97), by Jane G.
Gravelle and Donald J.
Marples.
Subpart E—Other Business Tax Provisions
Credit for Clinical
Testing of Orphan
Drugs Limited to
First Use or
Indication
Under current law, businesses investing in the
development of drugs to diagnose, treat, or prevent
rare diseases and conditions—sometimes referred to
as “orphan
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