Working Americans Affordability Tax Credit Act
- Sponsor
- Rep. Landsman, Greg [D-OH-1]
- Committees
- Ways and Means Committee (primary)
- Last action
- Sep 14, 2026
Bottom line
The bill seeks to redistribute wealth and tax burden by providing direct financial relief to working families while significantly increasing the tax obligations and reducing deferral opportunities for the wealthiest Americans and their associated entities.
What it actually does
This bill establishes a new monthly tax credit of $4,200 for working Americans, phased out for higher earners, aiming to boost affordability. Concurrently, it enacts a sweeping overhaul of tax rules for high-net-worth individuals and certain entities, introducing mark-to-market taxation for tradable assets, deferral recapture for nontradable assets, and closing various tax loopholes related to trusts, deferred compensation, life insurance, small business stock, and opportunity funds, primarily targeting individuals with over $100 million in income or $1 billion in assets.
Proponents argue
Proponents argue that the bill is a critical step towards economic fairness, ensuring that the wealthiest individuals and corporations pay their fair share of taxes. They contend that the current tax system allows billionaires to defer taxes indefinitely, exacerbating income inequality. The Working Americans Affordability Tax Credit would provide much-needed financial relief to middle- and lower-income families, stimulating the economy and improving living standards for ordinary citizens. This legislation is presented as a necessary rebalancing of the tax code to benefit the majority.
Opponents contend
Opponents would likely argue that the bill's aggressive new taxes on high-net-worth individuals and complex financial structures could severely stifle investment, innovation, and job creation. They might contend that such measures could lead to capital flight, reduce incentives for wealth accumulation, and ultimately harm the broader economy. Critics would also point to the significant increase in tax code complexity and administrative burden for both taxpayers and the IRS, potentially leading to unintended consequences and legal challenges. They may also argue that the bill is a punitive measure targeting success rather than a genuine effort to improve the economy for all.
The bill is 30 pages long and highly technical, involving extensive amendments to the Internal Revenue Code. An informed reader would require substantial time to fully grasp its implications, especially concerning the new mark-to-market and deferral recapture rules.
Title I, Sec. 101
Working Americans Affordability Tax Credit
This section establishes a new refundable tax credit for eligible individuals. The credit is set at $4,200 for individuals and $8,400 for those filing a joint return where both spouses are eligible. The credit begins to phase out for taxpayers with modified adjusted gross income (MAGI) exceeding $100,000 ($200,000 for joint filers). This aims to provide direct financial support to working families, effectively increasing their disposable income.
Supporters argue
Supporters argue this credit directly addresses the rising cost of living, putting money back into the pockets of working families. They contend it will stimulate local economies and reduce financial stress for millions of households, promoting economic stability and growth from the bottom up.
Critics contend
Critics might argue that while well-intentioned, such a broad credit could be inflationary if not properly offset, or that it adds to the national debt. They may also question its effectiveness in achieving long-term economic stability compared to other policy interventions.
Tradeoffs
The primary tension is between providing direct financial relief to working families and the potential fiscal cost or inflationary pressures if not adequately funded. It also raises questions about the optimal mechanism for income support.
Title II, Sec. 201 (New Part IV of Subchapter E)
Elimination of Deferral for Applicable Taxpayers
This section introduces a new tax regime for 'applicable taxpayers' (high-net-worth individuals and certain trusts/estates). It mandates 'mark-to-market' taxation for 'tradable covered assets' annually, meaning unrealized gains and losses are recognized each year. For 'nontradable covered assets,' it imposes a 'deferral recapture amount' (an interest charge on deferred tax) when these assets are transferred in certain 'disregarded nonrecognition events' (like like-kind exchanges or transfers to controlled corporations). This fundamentally changes how the wealthiest individuals are taxed on their investments, aiming to prevent indefinite deferral of capital gains.
Title II, Sec. 201 (New Sec. 495)
Definition of 'Applicable Taxpayer'
This section defines who qualifies as an 'applicable taxpayer,' triggering the new tax rules. An individual is an applicable taxpayer if, for each of the three immediately preceding taxable years, they met either an 'income test' (applicable adjusted gross income exceeding $100 million, or $50 million for married filing separately) or an 'asset test' (aggregate applicable value of covered assets exceeding $1 billion, or $500 million for married filing separately). Special rules apply for trusts, estates, married individuals, and expatriates, with lower thresholds for applicable trusts ($10M income or $100M assets).
Title II, Sec. 201 (New Sec. 494)
Treatment of Gifts, Bequests, and Transfers in Trust
This provision treats gifts, transfers upon death, or transfers into trust of 'covered assets' by an applicable taxpayer (or applicable entity) as a deemed sale of the asset at fair market value on the date of transfer. This means unrealized capital gains would be recognized and taxed at the time of transfer, rather than being deferred until the asset is actually sold by the recipient. Exceptions are provided for transfers to spouses, surviving spouses, and qualified charities. This aims to prevent the transfer of appreciated assets without triggering tax liability.
Title III, Subtitle A, Sec. 301
Elimination of AGI Limitation on Net Investment Tax for Applicable Taxpayers
This section amends Section 1411(a) of the Internal Revenue Code, which imposes a 3.8% tax on net investment income. Currently, this tax applies only to individuals, estates, and trusts whose modified adjusted gross income (MAGI) exceeds certain thresholds ($200,000 for single filers, $250,000 for joint filers). This amendment removes that MAGI limitation for 'applicable taxpayers' (as defined in new Section 495). This means that for applicable taxpayers, the 3.8% net investment income tax will apply to all their net investment income, regardless of their MAGI level, effectively increasing their tax burden on investment income.
Title III, Subtitle A, Sec. 302
Stricter Treatment of Covered Expatriates Who Are Applicable Taxpayers
This section significantly tightens the tax rules for 'covered expatriates' (individuals who renounce U.S. citizenship or long-term residency and meet certain wealth or tax liability thresholds) if they are also 'applicable taxpayers.' It prohibits such expatriates from electing to defer tax on deemed asset sales at expatriation and subjects them to a broader mark-to-market rule on all property held at the end of a 10-year post-expatriation period. Furthermore, it explicitly states that these individuals will be taxed under Section 877 (which imposes alternative tax rates on certain U.S. source income for 10 years after expatriation) for the entire 10-year period, overriding any exceptions. This aims to prevent high-net-worth individuals from avoiding U.S. taxes by renouncing citizenship.
Title III, Subtitle B, Sec. 311
Disallowance of Like-Kind Exchanges for Applicable Entities
This section amends Section 1031 of the Internal Revenue Code, which allows taxpayers to defer capital gains taxes on the exchange of certain 'like-kind' properties. The amendment specifies that this deferral will no longer apply to exchanges made by an 'applicable entity' (e.g., partnerships, S corporations, or other pass-through entities with significant ownership by applicable taxpayers). This means that when such an entity exchanges like-kind property, any gain would be immediately recognized and taxed, rather than deferred. This targets a common strategy used by wealthy investors to indefinitely defer taxes on real estate and other investment property.
Title III, Subtitle B, Sec. 312
Disallowance of Tax-Free Transfers to Controlled Corporations for Applicable Entities
This section amends Section 351 of the Internal Revenue Code, which generally allows individuals to transfer property to a corporation in exchange for stock without recognizing gain or loss, provided they control the corporation immediately after the exchange. This amendment specifies that this tax-free treatment will no longer apply to such exchanges made by an 'applicable entity' if an 'applicable notice' (indicating significant ownership by an applicable taxpayer) is in effect. An 'applicable notice' applies if an applicable taxpayer is a 20-percent owner of the entity. This aims to prevent applicable entities from using Section 351 transfers to defer or avoid tax on appreciated assets.
Title III, Subtitle B, Sec. 313
Special Rules for Applicable Trusts, Including Foreign Trusts
This section introduces several new rules for 'applicable trusts' (trusts meeting certain income or asset thresholds, typically lower than for individuals). It mandates that in-kind distributions from such trusts (and certain estates) are treated as if the property was sold at fair market value, triggering gain recognition. It expands the 'loan' rules (Section 643(i)) to treat certain loans from applicable trusts as distributions, making them taxable. It also adds a new Section 686 for 'applicable foreign trusts,' imposing a deferral recapture amount on beneficiaries for gains from applicable transfers, unless the trust itself pays the tax. These changes aim to prevent trusts from being used to defer or avoid taxes on wealth.
Title III, Subtitle C, Sec. 321 (New Sec. 409B)
Elimination of Deferral of Tax on Certain Deferred Compensation
This section introduces a new Section 409B to the Internal Revenue Code, specifically targeting 'applicable deferred compensation' for 'applicable taxpayers.' When such compensation is includible in gross income, the taxpayer's tax liability will be increased by a 'deferral recapture amount.' This amount is essentially an interest charge on the deemed tax that would have been paid if the compensation had been taxed ratably over its deferral period. Additionally, a 10% additional tax is imposed on severance pay for applicable taxpayers. This aims to prevent high-income individuals from indefinitely deferring taxes on substantial compensation packages.
Title III, Subtitle C, Sec. 322
Rules for Private Placement Life Insurance and Annuity Contracts of Applicable Taxpayers
This section significantly alters the tax treatment of 'private placement life insurance' (PPLI) and 'private placement annuity contracts' (PPACs) for 'applicable taxpayers.' It mandates that amounts received under such contracts (including withdrawals, surrenders, and death benefits) are taxed more aggressively, generally treating them as income first, then return of basis, rather than the more favorable 'basis first' rule. A 10% additional tax is imposed on distributions from these contracts, similar to modified endowment contracts. Crucially, it repeals the exclusion for death benefits (Section 101(a)(1)) for amounts received under PPLI/PPACs. These changes aim to eliminate the use of these contracts as tax-sheltered investment vehicles for the ultra-wealthy.
Title III, Subtitle D, Sec. 331
Disallowance of Exclusion for Qualified Small Business Stock (QSBS) for Applicable Taxpayers
This section amends Section 1202(a) of the Internal Revenue Code, which allows taxpayers to exclude a significant portion (up to 100%) of the gain from the sale of 'qualified small business stock' (QSBS) if certain conditions are met. The amendment specifies that this exclusion will no longer apply to any gain from the sale or exchange of QSBS by an 'applicable taxpayer' (as defined in new Section 495). An exception is provided for QSBS acquired before November 30, 2025, effectively grandfathering existing investments. This aims to prevent the wealthiest individuals from using the QSBS exclusion to avoid capital gains tax on substantial investments.
Title III, Subtitle D, Sec. 332
Modifications for Investments in Qualified Opportunity Funds (QOFs)
This section significantly modifies the tax benefits associated with investments in 'Qualified Opportunity Funds' (QOFs), which allow investors to defer and potentially exclude capital gains by reinvesting them in designated low-income communities. For 'applicable taxpayers' and 'applicable entities,' the ability to make new QOF elections is terminated after the earlier of December 31, 2026, or the last day of the taxable year preceding their first year as an applicable taxpayer. Furthermore, the special rule allowing for the exclusion of gain on QOF investments held for 10 years is modified for applicable taxpayers/entities, limiting the exclusion to the lesser of the fair market value at the 10-year mark (or when they became an applicable taxpayer/entity) or the fair market value at sale. This aims to curtail the use of QOFs as a tax deferral and avoidance tool for the ultra-wealthy.
Allows an 'earlier termination election' of applicable taxpayer status for divorced individuals, with significantly lower income ($1 million) and asset ($10 million) thresholds for the year following divorce. This is a specific carve-out for individuals whose financial status changes significantly due to divorce.
Sec. 495(a)(4)(B) (within the definition of 'Applicable Taxpayer')
Why it matters:This is likely a standard legislative practice to address specific hardship cases or to mitigate potential unintended consequences of broad new tax rules. It provides a mechanism for individuals whose wealth or income significantly decreases post-divorce to exit the 'applicable taxpayer' regime more quickly.
Case for: Supporters would argue this provision offers necessary relief and flexibility for individuals undergoing significant life changes like divorce, preventing them from being unduly burdened by rules designed for sustained ultra-high net worth. It adds a layer of fairness to the new regime.
Case against: Critics might argue that even these lower thresholds are still substantial, and the complexity of these specific rules adds to the overall administrative burden. They might also question if such a specific carve-out could be exploited or if it creates an inequitable distinction.
Estimated impact: Likely impacts a small number of high-net-worth individuals undergoing divorce, potentially reducing their tax liability compared to remaining an 'applicable taxpayer' for longer.
Allows a 'qualified taxpayer' (not an estate or trust, whose first applicable taxpayer year is before Jan 1, 2025) to elect to treat stock in a single C corporation (up to $1 billion in value) as a nontradable capital asset, rather than a tradable covered asset subject to mark-to-market. This effectively grandfathers a significant portion of existing tradable stock holdings for a specific subset of applicable taxpayers.
Sec. 496(d) (within 'Special Rules for Taxpayers Entering or Changing Status')
Why it matters:This is a clear tactical concession, likely negotiated to reduce opposition from certain wealthy individuals or business owners who would be significantly impacted by immediate mark-to-market on their primary public company holdings. It provides a transition or permanent relief for a specific type of asset.
Case for: Proponents of this specific carve-out would argue it provides a necessary transition for long-term investors in public companies, preventing immediate and potentially disruptive tax liabilities on unrealized gains. It acknowledges that some wealth is tied up in foundational investments that should not be subject to immediate mark-to-market.
Case against: Critics would argue that this provision undermines the core principle of mark-to-market for tradable assets and creates an unfair advantage for a select group of existing wealthy investors. They might contend it weakens the bill's overall intent to eliminate deferral for billionaires.
Estimated impact: Potentially reduces immediate tax liabilities for a small number of ultra-wealthy individuals with significant, long-held public company stock, potentially deferring billions in tax revenue.
States that certain assets excluded from being 'covered assets' for mark-to-market purposes (specifically, applicable savings plans, cash/cash equivalents, and private placement life insurance/annuity contracts) are still counted as 'nontradable covered assets' when determining the 'aggregate applicable value' for the $1 billion asset test for 'applicable taxpayer' status.
Sec. 497(c)(2) (within 'Terms and Rules Relating to Covered Assets')
Why it matters:This is a technical drafting choice to ensure that individuals with substantial wealth held in these specific, often tax-advantaged, asset classes are still captured by the 'applicable taxpayer' definition. It prevents individuals from structuring their wealth solely in these excluded assets to avoid the new regime entirely.
Case for: Proponents would argue this ensures the 'applicable taxpayer' definition accurately captures the wealthiest individuals, regardless of how they hold a portion of their assets. It prevents a loophole where individuals could shift wealth into these excluded categories to avoid the new tax regime's applicability.
Case against: Critics might argue it adds unnecessary complexity to the asset test and could lead to situations where individuals are deemed 'applicable taxpayers' based on assets that are not themselves subject to the new mark-to-market rules, creating a disconnect.
Estimated impact: Ensures a broader range of ultra-wealthy individuals are captured by the 'applicable taxpayer' definition, potentially increasing the number of individuals subject to the new tax regime.
Defines 'disregarded nonrecognition event' broadly to include any exchange to which Section 351 (tax-free transfers to controlled corporations) or Section 1031 (like-kind exchanges) applies, as well as certain transfers involving C corporations identified by the Secretary, and any other transaction the Secretary deems necessary to prevent avoidance. This is a critical definition that triggers gain recognition and deferral recapture for nontradable assets in transactions that would otherwise be tax-free.
Sec. 498(a)(2) (within 'Other Definitions; Coordination with Title')
Why it matters:This is a technical but crucial anti-abuse provision. By defining these common tax-free transactions as 'disregarded nonrecognition events,' the bill ensures that the new deferral recapture rules apply to many strategies previously used by the wealthy to avoid immediate tax liability. The Secretarial authority provides flexibility to address future avoidance schemes.
Case for: Proponents argue this definition is essential to prevent sophisticated taxpayers from simply shifting assets into new structures to avoid the new mark-to-market and deferral recapture rules. It ensures the bill's intent to tax deferred gains is robustly enforced across various transaction types.
Case against: Critics might argue that such a broad definition, especially with the open-ended Secretarial authority, creates significant uncertainty for taxpayers and could inadvertently capture legitimate business transactions. They may contend it grants too much power to the Treasury Department to define taxable events.
Estimated impact: Significantly expands the scope of transactions that will trigger tax liability or deferral recapture for nontradable assets of applicable taxpayers, potentially generating substantial revenue.