On August 24, the U.S. House of Representatives voted 220-212 in favor of a $3.5 trillion budget resolution, setting the stage for Congressional committees to draft legislation that would:

• Expand Medicare

• Invest in education

• Combat climate change

• Advance other key spending priorities of the Biden administration

This legislation is also expected to include tax increases to help fund the spending package.

The Senate passed the same resolution on August 11 with a 50-49 party-line vote. The resolution does not require President Biden’s signature—it instead activates the reconciliation process, which allows Democrats to move forward with a tax-and-spending package without Republican support.

Next Steps in the Legislative Process

The resolution now moves to congressional committees that will craft specific legislation to advance the President’s “Build Back Better” agenda. Notably, Senate Finance Committee Chair Ron Wyden (D-Ore.), along with Senators Sherrod Brown (D-Ohio) and Mark Warner (D-Va.), released a draft of proposed reforms to the U.S. international tax regime for inclusion in the final bill.

This draft is expected to closely follow the administration’s Green Book, a 114-page Treasury document issued on May 28, outlining major tax proposals.

Proposed Tax Increases May Include:

• Raising the corporate tax rate from 21% to 28%

• Increasing the top marginal individual tax rate from 37% to 39.6% for:

  • Married filing jointly: Over $509,300

  • Married filing separately: Over $254,650

  • Head of household: Over $481,000

  • Single filers: Over $452,700

• Taxing long-term capital gains and qualified dividends at ordinary income tax rates for taxpayers with AGI over $1 million

International Tax Reforms May Include:

• Reforming and increasing the GILTI (Global Intangible Low-Taxed Income) tax

• Repealing FDII (Foreign-Derived Intangible Income)

• Replacing BEAT (Base Erosion and Anti-Abuse Tax) with SHIELD (Stopping Harmful Inversions and Ending Low-Taxed Developments)

Infrastructure Package & Legislative Timing

As part of the administration’s two-track strategy, House Speaker Nancy Pelosi committed to passing the Senate-approved $1 trillion infrastructure package by September 27.

Timing remains a major challenge:

• Progressive Democrats want to prioritize the broader $3.5 trillion budget

• Moderate Democrats prefer to first pass the infrastructure bill

This standoff nearly derailed the agenda, but the final vote preserved momentum.

Republican Opposition

Republicans opposed the resolution, arguing that the spending could drive inflation and significantly increase the federal deficit.

On August 25, Senate Finance Committee Chair Ron Wyden (D-Ore), along with Senators Sherrod Brown (D-Ohio) and Mark Warner (D-Va), released a draft proposal aimed at overhauling the U.S. international tax system.

This new proposal builds on the previously introduced Overhauling International Taxation framework released in April and adds more details about significant potential changes to international tax provisions enacted under the 2017 Tax Cuts and Jobs Act (TCJA). Key provisions addressed include:

• Global Intangible Low-Taxed Income (GILTI)

• Base Erosion and Anti-Abuse Tax (BEAT)

• Foreign Derived Intangible Income (FDII)

• Foreign Tax Credit (FTC) rules

Key Differences: Wyden Proposal vs. Biden Administration’s Green Book

Below is a summary of how the Wyden plan compares to the Biden Administration’s tax proposals:

Global Intangible Low-Taxed Income (GILTI)

With the cargo business blasting, financier firms are bouncing from organization to organization quickly, prompting high paces of turnover. Regularly, agents are beginning the work with the guarantee…

As 2020 concludes, employers should carefully review the treatment and reporting of fringe benefits, particularly for employees and 2% S corporation shareholders. Due to changes under the CARES Act and COVID-19 relief efforts, several new rules and exceptions apply.

Key Year-End Reminders for Employers

Fringe Benefit Basics

Fringe benefits are generally taxable unless specifically excluded by law. The value of these benefits must be determined before December 31 to ensure proper payroll tax withholding and reporting on Form W-2 or 1099 by January 31, 2021.

Common Employee Fringe Benefits

Group-Term Life Insurance

• First $50,000 in coverage is tax-free.

• Excess coverage is taxable and must be reported in Boxes 1, 3, 5, and 12 (Code C) on Form W-2.

Business Expense Reimbursements

• Non-accountable plan reimbursements are taxable.

• Accountable plan reimbursements (with adequate substantiation or per diem rates) are tax-free.

COVID-19 Qualified Disaster Payments (Section 139)

• Tax-free payments for unreimbursed COVID-related expenses.

• Examples: remote work supplies, child care due to school closures, and additional health costs.

• No W-2 or 1099 reporting required.

Employer-Paid Student Loan Assistance (CARES Act)

• Up to $5,250 is excludable if provided under a compliant Section 127 educational assistance plan.

PTO Leave Donation

• Properly structured leave-sharing plans allow employees to donate unused PTO without tax consequences to the donor.

• IRS Notice 2020-46 allows cash donations to COVID-19 charities through PTO conversion to be tax-free to the employee.

Personal Use of Company Vehicles

• Taxable as imputed income.

• Use special valuation methods and notify employees by January 31.

• FICA withholding required, FIT optional.

• COVID-related business travel changes may have increased personal use percentages.

Personal Use of Company Aircraft

• Value is based on the Standard Industry Fare Level (SIFL) formula.

• Imputed income is subject to FICA, FUTA, FITW, and SITW.

• Non-business entertainment use may also generate nondeductible expenses for the employer.

De Minimis Fringe Benefits

• Small, infrequent benefits can be excluded.

• Cash, gift cards, and event tickets are never de minimis.

• Frequent or lavish meals may be challenged by the IRS.

Employee Gifts and Awards

• Tangible personal property gifts may be excluded if they qualify under length-of-service or safety award rules.

• Limits: $400 for nonqualified plans, $1,600 for qualified plans.

• Non-cash gifts exceeding $25 are generally taxable.

Moving Expenses

• Taxable to employees unless for active-duty military under PCS orders.

• Employers may still deduct the expense.

Qualified Transportation Benefits

• Monthly tax-free limits for 2020: $270 for parking, $270 for transit/vanpool.

• Amounts exceeding these are taxable.

• Employer deduction disallowed under current law.

Noncompensatory Cell Phones

• Business use of employer-provided devices is tax-free.

• Must be provided for business reasons, not as a benefit or bonus.

Special Fringe Benefit Rules for 2% S Corporation Shareholders

Certain fringe benefits that are excludable for regular employees must be included in taxable income for 2% S corporation shareholders. Failure to report them on Form W-2 disallows the corporation’s deduction.

Benefits Included in Wages:

• Health, dental, vision, and LTC insurance

• Section 127 tuition reimbursement

• Health savings account contributions

• Disability insurance premiums

• Group-term life insurance (entire premium)

• Transportation and adoption assistance

• Personal use of company assets and meals/lodging

Ineligible for:

• Participation in cafeteria plans

• Pre-tax reimbursements for health premiums

Fringe Benefits Not Taxable to 2% Shareholders:

• Qualified retirement plan contributions

• Educational assistance (limited by ownership rules)

• Dependent care assistance (with nondiscrimination limits)

• Retirement planning services

• No-additional-cost services

• Qualified employee discounts

• Working condition and de minimis fringe benefits

• On-site athletic facilities

Final Thoughts

Year-end fringe benefit reporting and compliance require careful planning and documentation. Be sure to:

• Review all benefits provided to employees and shareholders.

• Ensure taxable benefits are included in W-2 reporting.

• Document and comply with the requirements for any exclusions.

If you have questions about the reporting of fringe benefits, proper treatment for S corporation shareholders, or CARES Act provisions, contact your tax advisor to ensure compliance and avoid missed deductions or penalties.