Tax Implications of the Biden Administration’s New  Infrastructure Bill

Part One

The long-awaited infrastructure proposal was approved by Congress late last week and has been signed into law by President Joe Biden. As part of the President’s mission to “build back better,” the proposal is a considerable investment in the country’s infrastructure. 

And while not as large as once envisioned — originally, it was $3.5 trillion — it is still a substantial amount at $1.2 trillion. Funding for the Infrastructure Bill will come from a few sources.

Following are some of the tax changes that will impact businesses and investors.

Early Expiration of the Employee Retention Tax Credit 

Established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, the Employee Retention Tax Credit, or ERC, provided relief to business owners. The intention was to help businesses retain their workforces and avoid layoffs. While the ERC was supposed to end at the end of 2021, once President Biden signs the Infrastructure Bill, the provision will end on September 30, 2021. 

The ERC allowed a per-employee refundable quarterly tax credit to eligible businesses based on a percentage of qualified wages and health insurance benefits. Not every business was eligible for the ERC — employers had to have shown a significant decline in gross receipts.

The ERC will be considered terminated effective October 1, 2021, except for recovery startup businesses. It remains unknown whether employers who would have qualified for the fourth quarter credit and reduced their payroll tax deposits prior to the passage of the bill, will face late deposit penalties for the short-fall of the payroll taxes deposited.

Targeting the Cryptocurrency Industry  

While the ERC amendment simply moved back an already expiring provision by three months, rules for reporting on cryptocurrency transactions are more substantial — including treating failure to report as a felony.

The provisions state that any person who regularly executes transfers of digital assets — including bitcoin, ether and NFTs — needs to report those transactions to the IRS, as well as reporting any digital asset transaction over $10,000. The rule is similar to the mandates that exist for stock and bond trades today.

Crypto fans fear the new rules will require everyday users, developers, and cryptocurrency miners to report information they may be unaware of, thus finding themselves positioned for potential felony convictions and five-year prison terms. 

Under the new law, the definition of a broker will be expanded to include those who operate trading platforms for cryptocurrency and other digital assets. In addition, brokers will be subject to new reporting requirements for purchases, sales, transfers and transactions involving cryptocurrency. Transfers between self-custody wallets and crypto exchanges would need to be reported by the exchange, and could lead to an incorrect cost base.

The bill will require the IRS to define a “broker” of digital assets and what are “digital assets,” and both have yet to be defined. This part of the bill is expected to be fought in Congress and the Courts before it takes effect in January 2024.

Pension Smoothing

Pension smoothing provides flexibility in funding pension obligations to sponsor defined benefit plans. The infrastructure bill adjusts the funding stabilization percentages that were included in the American Rescue Plan Act enacted in March, and extends the interest rate stabilization period from 2029 to 2034.

International and domestic tax are in a period of dynamic change, as how and where we conduct  business and what we define as currency is evolving at a rapid pace.

We look forward to keeping our readers and clients up-to-date with timely information for strategic planning.