U.S. President Joe Biden released his 2022 budget submission to Congress. The budget contains several tax proposals aimed at increasing taxes and compliance. The budget would still need to be voted on in Congress in order to be enacted. However, given the Democrat control of both the Senate and the House, there is a strong likelihood that many of these proposals become enacted.
Many of Joe Biden’s tax proposals aim to increase taxes for large U.S. multinational corporations and wealthy individuals. However, many of the proposals still have implications for Canadian companies doing business in the U.S. We highlight the top 3 things you need to know about the 2022 U.S. budget if your company does business in the U.S.
1. Increasing the U.S. Corporate Tax Rate from 21% to 28%
President Biden is proposing to increase the U.S. corporate federal tax rate from 21% to 28%, which is a significant increase. Note that this tax rate excludes any U.S. state tax rates that may be applicable (typically, the average state tax rate is 6% and would be in addition to the federal rate).
The increase in the U.S. corporate tax rate has other implications that extend beyond the corporate tax rate. For instance, the value of the state tax deduction will also increase. The implications are complex and are beyond the scope of this article.
2. Increasing Spending on the IRS
It has long been known that the IRS’s funding has consistently been decrasing. The IRS does not have the required resources to effectively enforce the tax laws. As such, some individuals and companies simply do not file their required filings.
As a bid to raise revenue, Biden is proposing to significantly increase the IRS budget, nearly double the IRS workforce, and modernize their IT systems to ensure taxpayers are in compliance. With the increasing of the the IRS budget should come increased visibility and enforcement from the IRS. Companies who do business in the U.S. should consider reviewing their U.S. tax exposure and ensuring accurate compliance.
3. Increasing Third-Party Reporting
To further ensure compliance, Biden is proposing to have U.S. banks and other financial institutions report the total deposits and withdrawals of each of their customers and to provide those amounts to the IRS.
Through FATCA, measures already exist for non-U.S. banks to provide financial information for their U.S. clients.
A separate proposal targets cryptocurrency investors by requiring cryptocurrency exchanges to report transfers of USD$10,000 or more to the IRS.
Call to Action
As tax rates increase, the IRS enforcement increases, and third-party reporting increases, it is evident that the new Biden administration is taking a stricter approach towards tax administration and is equipping themselves with the necessary resources. What does this mean for your Canadian business? It is best that your company review their U.S. tax obligations to ensure they are compliant before many of these measures are enacted.
