March 20, 2023

President Biden’s 2024 Proposed Federal Budget

On March 8, 2023, the Biden Administration released the proposed Budget of the U.S. Government – Fiscal Year 2024. The document outlines the President’s spending priorities for the coming year, details policy objectives, and detailed descriptions of how the changes will impact each Department, starting with Agriculture and concluding with the Social Security Administration. Buried deep in the long document are important updates and changes to the Internal Revenue Code (IRC) including tax incentives, tax rates, and the addition/extension of certain tax benefits.

The 2024 budget calls for an increase in the highest tax bracket to 39.6%, a minimum 25% tax rate on the super-wealthy, and the elimination of fossil fuel tax preferences. In addition, there are several proposed changes to retirement plans as well. Although the budget still needs to work through Congress, it does provide insight into future changes. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

Proposed Tax Changes – 2024 Budget

• Increase in the Highest Tax Bracket – The Budget calls for an increase in the highest tax bracket from 37% to 39.6%, effective for tax years after December 31, 2022. This increase would apply to married filing jointly earning over $450,000, $425,000 heads of household, and $225,000 for married filing separately. After 2024, the thresholds would be indexed to inflation. It is important to note this provision would reverse changes made in the Tax Cuts and Jobs Act of 2017.
• 25% Minimum Tax – There is also a provision calling for a new 25% minimum tax on the total income of all taxpayers with wealth (determined by subtracting liabilities from income) greater than $100M. The proposal permits impacted taxpayers to elect to pay the first year’s liabilities in nine equal annual installments. In other years, taxpayers may elect to pay the minimum tax in five equal annual installments. If passed, these changes would be effective for tax years after December 31, 2023.
• Digital Mining Energy Excise Tax – This new tax would be imposed on any company that uses computing resources to mine digital assets. The tax is equal to 30% of the cost of electricity used in digital asset mining. Impacted companies would be required to report the amount and type of electricity used as well as the value of the electricity. If approved, it would be effective for taxable years starting after December 31, 2023. In addition, the tax would be phased in over three years including 10% in the first year, 20% in the second, and 30% in the third and beyond.
• Limit Rollovers/Conversions to Roth IRAs – This provision will prohibit a rollover to a Roth IRA for amounts distributed from a non-Roth retirement plan for high-income taxpayers. It would also prohibit rollovers or transfers of amounts not held in a designated Roth account into a designated Roth account. The definition of a high-income taxpayer is identical to the one outlined in the first bullet point above. If passed, this change would be effective starting after December 31, 2023.
• Prohibit IRA Purchase of DISC/FSA Interest – This provision would prohibit an IRA from holding an ownership interest in a Domestic International Sales Corporation (DISC) that receives payment from an entity owned by the IRA owner. Violations of the rule would be the same as engaging in a prohibited transaction, the IRA would be deemed to have distributed all assets on the first day of the taxable year. If passed, the provision would be effective for interests acquired, or held, after December 31, 2023.

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While only a small excerpt of the proposed tax changes, it is clear they are designed to capture additional tax from high-income earners. Indeed, not all of these changes will become law, but it does provide interesting insight into the Administration’s goals and priorities. It is also a good prompt to review estate and tax planning strategies. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.