Revised House Bill Confirms that Proposed Revisions to Section 1411

3.8% Tax Not Applicable To Payments of Nonqualified Deferred Compensation Earnings

Date: November 10, 2021

Good News.

The November 3 House version of H.R. 5376, Build Back Better Act clarifies that payments of deferred compensation earnings are not subject to the 3.8% net investment income tax. The original versions of the House bill raised the potential for an unintended result (or at least confusion) that would have subjected deferred compensation earnings to the 3.8% tax. Substantial changes to Section 1411 in other contexts created the issue. The email explanation of the issue was sent to Treasury Benefits Tax Counsel (Carol Weiser) and a staff person of House Ways and Means Committee Chair Rep. Neal (Kara Getz) and, thankfully, the edit was included in the version released on November 3.

The potential hole was never an intended result. A similar issue surfaced when the 3.8% tax was enacted in 2010, which was resolved earlier. That background was used to get a similar favorable result. The revision was requested to prevent the sort of debate that existed back in 2010.

The added language that provides the exemption is bracketed on page 1886. Click here.

Francesco A. Ferrante

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