Pending Tax Developments

Courtesy of Thomson Reuters

The following is a summary of important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

Healthcare bill moves through Congress. On May 4, the House of Representatives passed along party lines the American Health Care Act (AHCA), the Republican plan to repeal and replace the Affordable Care Act (ACA, also known as Obamacare), as amended. The House-passed bill would need to be reconciled with the Senate’s version of health reform legislation.

The AHCA would repeal virtually all of the ACA tax provisions, including the following. (Except as otherwise provided, the repeal would go into effect in 2017).

  • The penalty on individuals who don’t carry adequate insurance, retroactively effective beginning in 2016.
  • The employer shared responsibility penalty (i.e., the penalty that applies to certain employers who don’t offer health care coverage for its full-time employees, or offers minimum essential coverage that is unaffordable or does not provide minimum value). The repeal would be retroactively effective beginning in 2016.
  • The premium tax credit that makes health insurance premiums more affordable for certain low-income taxpayers. The repeal would be effective in 2020 (and a modified, age-based tax credit would be provided pending its repeal).
  • The 3.8% net investment income tax (NIIT) on certain higher income individuals.
  • The 0.9% additional Medicare tax on certain higher income individuals, effective 2023.
  • The higher floor beneath medical expense deductions. Under current law, the floor is 10% (effective in 2013 for taxpayers under age 65 and in 2017 for taxpayers 65 and older). The AHCA would reduce the floor to 5.8% for all taxpayers beginning in 2017.
  • The small employer health insurance credit, effective 2020.
  • The dollar limitation (currently $2,700) on health Flexible Spending Account (FSA) contributions.
  • The disallowance of any deduction for compensation in excess of $500,000 for certain health insurance executives.

The 40% excise tax (the so-called “Cadillac” tax) on high cost employer-sponsored health plans, would be delayed until 2026, but would not be repealed.

On July 13, the Senate leadership released its healthcare bill, renamed the Better Care Reconciliation Act of 2017 (BCRA), as amended, for consideration. It left most of the provisions of the House-passed bill intact, but notably did not call for the repeal of the 3.8% NIIT, the 0.9% additional Medicare tax, or the disallowance of any deduction for compensation in excess of $500,000 for certain health insurance executives.