Biden’s Infrastructure Bill: Key Tax Changes

On November 15, 2021, President Biden officially signed the Infrastructure Investment and Jobs Act of 2021("IIJA"). This act is designed to improve the condition of America’s highways, roads, public transit, bridges, and even utilities. It comes with a cost of approximately $1.2 trillion, which is notably less than the original proposals. When the government passes new legislation with a large budget such as this, it is almost guaranteed that tax changes will follow. The IIJA is no exception. Although the IIJA has fewer tax provisions than expected, more extensive tax changes are expected as part of the "Build Back Better" bill that is still under negotation in Congress. In the meantime, taxpayers can take note of the tax implications that have been passed as part of the IIJA.

Tax Provisions and Implications

Cryptocurrency: The Infrastructure Investment and Jobs Act expands the requirements for reporting cryptocurrency. Currently, requirements for reporting cryptocurrency fall under the rules applicable to capital property transactions or where currency is used as compensation to employees or contractors. In an effort to combat underreported cryptocurrency transactions, the IIJA has included a provision that expands reporting requirements to include brokers and anyone regularly responsible for executing digital asset transfers on behalf of another person. Penalties for failure to file information returns have been extended to apply to the new reporting requirements. Some individuals are concerned that these new provisions may be too broad and could potentially affect individuals who mine cryptocurrency as well. Under the new law, businesses must also report digital payments worth over $10,000 in the same manner as they would cash payments. The new requirements come into effect for returns filed after December 31, 2023.

Employer-sponsored retirement plans: A provision has been included that modifies applicable minimum and maximum percentages for certain pension plans. The relaxation of minimum funding requirements is projected to add tax revenue which will be used to fund the bill. This will go into effect for plan years beginning after December 31, 2021.

Employee Retention Credit: The employee retention credit was previously extended to cover wages until December 31, 2021, but the IIJA legislation has terminated this credit early as a means to raise funds. Under this bill, the credit can be applied only to wages paid before September 30, 2021 (except for wages paid by an eligible recovery startup business). Since this bill was enacted after the start of the fourth quarter, this causes a retroactive application for eliminating the credit.

Contributions to Water and Sewer Utilities: The Tax Cuts and Jobs Act of 2017 removed an an exclusion from income for contributions in aid of construction for water and sewer utilities. The Infrastructure Investment and Jobs Act restored this exclusion, meaning these utilities can treat money or property received as a tax-free contribution to capital if they meet certain requirements. This will be effective for contributions made after 2020.

Private Activity Bonds: This bill will expand the tax-exempt status on eligible private activity bonds. Previously, qualified private activity bonds only included bonds where a minimum of 95 percent of the net bond proceeds were used in financing airports, mass transit, docks, water facilities, and sewage facilities. However, the IIJA has expanded the list to include bonds used to finance qualified broadband projects and qualified carbon dioxide capture facilities.

Excise Taxes: A provision has been added to extend the excise tax on fuels, diesel and special fuels, retail sales of heavy trucks and trailers, and tires. The excise tax was previously set to expire on October 01, 2022. The IIJA has extended the tax through September 2028. The superfund excise taxes on polluting chemicals, which expired in 1995, have also been brought back and will go into effect starting in July 2022 and will run through 2031.

Taxpayers Serving in Combat Zones: The list of items that can be extended for taxpayers serving in a combat zone has been expanded to include Tax Court decision appeals and petition filings by the government for recovering erroneous refunds.

Disaster relief: Another provision in the IIJA extends tax deadlines for federally declared disasters. Additionally, federal assistance has been expanded to apply to taxpayers effected by “significant fires,” such as a wildfire.

Contact HHM CPAs if you need any assistance navigating the upcoming tax changes.