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Tax Implications of Healthcare Legislation |
On December 24, the Senate passed the Patient Protection and Affordable Care Act with significant tax implications. The legislation is much different than that passed earlier by the House so there should be considerable debate as the House and Senate negotiate to develop a conference report containing final legislation agreeable to the House, Senate and President. Preconference discussions are undoubtedly taking place and conference work on this is expected in early January.
Key tax provisions in the Senate bill include:
- A new excise tax would be imposed on high-cost or so-called Cadillac insurance plans. The 40 percent nondeductible excise tax would apply to plans costing more than $8,500 for individuals and $23,000 for families. The threshold would increase to $9,850 for individuals and $26,000 for families with certain high-risk jobs or those older than 55 but not yet receiving Medicare.
- The hospital insurance payroll tax on wages and self-employment earnings in excess of $200,000 would be raised to 2.35 percent, up almost an additional percentage point.
- It would limit annual contributions to health flexible spending arrangements to $2,500 and the types of expenses that can be reimbursed.
- It would increase the penalty for nonqualified withdrawals from health savings accounts to 20 percent.
- Only medical expenses in excess of 10 percent of a taxpayer's adjusted gross income would be deductible as itemized deductions. The current 7.5 percent level would remain for taxpayers 65 and older.
- A new excise tax on indoor tanning services equal to 10 percent of the amount paid for the procedure was introduced. This replaced an earlier proposal to impose a tax on cosmetic surgery.
- Small businesses with up to 25 employees and wages of less than $50,000 may qualify for a tax credit of up to 50 percent when they provide insurance for their employees. For employers with fewer than 10 employees and average wages of less than $20,000, a full credit could be available.
- Businesses would be faced with new information reporting burdens.
- A new 50 percent tax credit for certain investments made for new therapies to prevent, diagnose, and treat acute and chronic diseases was introduced.
- The bill does not include the House’s proposal for the 5.4 percent surtax on individuals earning more than $500,000 and joint filers with more than $1 million of income.
Source: RSM McGladrey |