Is Paying Less Tax Good for Your Health?

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The Senate recently released the draft of their health care billed named The Better Care Reconciliation Act of 2017 (BCRA), which replaces many of the tax provisions of the Affordable Care Act (ACA). If paying less tax is better for your heath, then this bill should give you a boost. Here is a summary of the key tax provisions included in this bill. I will leave the analysis and any questions you have on the health insurance side of the bill related to changes in cost, coverage and availability to my fellow Business Warrior, Janis VanAhn.

Most of these changes are similar to the American Health Care Act of 2017 that was passed by the House earlier this year. If the Senate can pass a health care bill, the next step would be to work out the differences between the House and Senate bills in committee. This could lead to even more interesting discussions.

EMPLOYER CHANGES

Employer Mandate Eliminated Beginning with 2016 tax year. The IRS began assessing a fine against employers with 100 or more full-time employees if they did not offer insurance to their employees or did not offer coverage that was affordable or did not provide minimum coverage. Beginning in 2016, this fine would extend to employers with 50 or more full-time employees. The BCRA would reduce this penalty to 0, beginning with the 2016 tax year.

Delay Implementation of the Cadillac Tax until 2026. The Cadillac Tax was originally scheduled to be imposed in 2018, but Congress moved this back to 2020. The BCRA would further delay the implementation to 2026. This is a 40% excise tax that would be assessed on high-cost employer-sponsored health insurance plans.

Modification to Small Business Tax Credit. The Small Business Health Insurance Tax Credit would not be available beginning with the tax year 2020.

INDIVIDUAL CHANGES

Individual Mandate Eliminated Beginning with 2016 tax year. The Affordable Care Act (ACA) required that all individuals have health insurance, qualify for an exemption or pay a penalty which was calculated on their tax returns. This payment for 2016 was the higher of $695 per adult ($347.50 for children under 18) or 2.5% of the family income above the filing threshold. The penalty would be 0 beginning with 2016 tax year. If you have already filed and paid this payment for 2016, you would be due a refund.

Repeal of the Net Investment Income Tax. Currently, there is a 3.8% tax on net investment income (interest, dividends, capital gains, rent and royalty income) for individuals with modified adjusted gross income above certain thresholds. This investment tax would no longer be in effect retroactively from the beginning of 2017.

Recapture

 of Excess Advance Payment of Premium Tax Credits in Full. If a taxpayer with income at or below 400% of the poverty level purchases insurance on the Marketplace, they may receive an advance premium tax credit based on their estimated household income. When filing their tax return, they must reconcile and pay back some of this credit if the household income is higher than estimated. The ACA has a limitation on the excess amounts to be repaid. With the BCRA, there would no limitation; all the excess amount would have to be repaid.

Restrictions on the Premium Tax Credit. The premium tax credit assistance would be retained, but the BCRA would significantly change the way it is calculated. The BCRA would restrict those who are entitled to the credit from 400% of poverty level down to 350% of poverty level. There would also be changes to the table related to age, with older individuals paying more for their premiums if their income was above 150% of poverty level income. These changes would not go into effect until the beginning of tax year 2020.

Repeal of Limitations on Contributions to Flexible Spending Accounts. The ACA limited the annual contribution to $2,500. This would be repealed effective for plan years beginning in 2018.

Allow Over the Counter Medications to be Purchased Using Tax Advantaged Health Account. This would be effective beginning of tax year 2017.

Reduce the Threshold for Medical Deduction. The ACA increased the threshold to 10% for taxpayers before any medical deductions were allowed. The threshold would be reinstated to 7.5%, effective tax year 2017.

Repeal of Medicare Tax Increase. The additional .9% Medicare tax imposed on earned income more than certain thresholds ($250,000 for married filing jointly; $200,000 for singles and head of households) will be repealed in taxable years beginning after December 31, 2022.

I have highlighted the tax changes that I felt were most significant for the clients I serve. There are other provisions that I have not included as well as much more detail regarding some of the changes such as the premium tax credit assistance. The full draft of this bill is 142 pages. No wonder the Senators and staff wanted and needed more time to read and digest it!! I will look forward to the discussion over this bill and watch with anticipation to see if it can pass the Senate. Sounds like an interesting year for health care!

 

kathi

Kathi Koenig, CPA
Partner – McGowen, Hurst, Clark & Smith, P.C.
p. 515.288.3279
e. kkoenig@mhcspa.com

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