# Tax Provisions in the “Build Back Better Act:” The House Ways and Means Committee’s Legislative Recommendations > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/crs%3AR46923 ## Record - **Collection:** Congressional research report - **Document type:** CRS Report - **Published:** September 28, 2021 - **Citation:** R46923 ## Text 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 1 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 2 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 3 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 4 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 6 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). 7 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. 8 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 9 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. 29 Tax Provisions in the “Build Back Better Act" Section Title Description CRS Resources 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 Congressional Research Service 30 Tax Provisions in the “Build Back Better Act" Section Title Description CRS Resources 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. Congressional Research Service 31 Tax Provisions in the “Build Back Better Act" Section Title Description CRS Resources 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 Congressional Research Service 32 Tax Provisions in the “Build Back Better Act" Section Title Description CRS Resources 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. Congressional Research Service 33 Tax Provisions in the “Build Back Better Act" Section Title Description CRS Resources 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 34 Tax Provisions in the “Build Back Better Act" Section Title Description CRS Resources 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. 35 Tax Provisions in the “Build Back Better Act" Section Title Description CRS Resources 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 36 Tax Provisions in the “Build Back Better Act" Section Title Description CRS Resources 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 provi [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3AR46923. Public record. Not legal advice.