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2021 Tax Updates and the Implications for Reinsurance
Feb 1, 2022
In the last quarter of 2021, Congress backed away from proposed tax law changes that could have affected the taxation of dealer-owned reinsurance companies and/or the taxation of distributions to shareholders of those companies. The tax attributes in 2022 for reinsurers taxed under Internal Revenue Code Section 831(b) and their shareholders will remain as they were in 2021, except as noted below:
- The IRS increased the maximum annual premium limit for Section 831(b) reinsurers in 2022 from $2.4 million to $2.45 million. (See Rev. Proc. 2021-45.36)
- The corporate tax rate on the taxable investment income of Section 831(b) reinsurers will continue at a flat 21% rate.
- The dividends paid by Section 831(b) reinsurers to their shareholders will continue to be treated as “qualified dividends” and taxed at the capital gains rates shown below.
- A gain received by a shareholder from the receipt of a liquidating distribution made by a liquidating Section 831(b) reinsurer will continue to be taxed as a capital gain at the 0/15/20% rates, with the following income brackets:
||Single||Married, Filing Jointly||Married, Filing Separately|
|0%|| $0 to $41,675
||$0 to $83,350||$0 to $41,675|
|15%||$41,676 to $459,750||$83,351 to $517,200||$41,676 to $258,600|
|20%||$459, 751 or more||$517,201 or more||$258,601 or more|
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