Proposed Healthcare Reform May Mean Tax Changes
Taxpayers may no longer need to be concerned with the 3.8% Net Investment Income Tax, among other taxes established under the Affordable Care Act ("ACA"). On March 6, 2017, the House Ways and Means Republicans unveiled the American Health Care Act which would repeal several provisions of the ACA including the Net Investment Income Tax that targeted capital gains, dividends and other passive income.1 Other taxes that would be repealed include 0.9% Medicare surcharge on high-income earners, the 2.3% medical device excise tax, and the 10% tanning tax. The individual mandate penalty for failing to maintain minimum healthcare coverage and the employer mandate penalty would also be repealed. While the repeal of the individual and employer mandate penalties would apply retroactively to months beginning after December 31, 2015, the repeal of the other taxes would not take effect until 2018.
Although the proposed legislation would repeal many of the ACA taxes, the bill unexpectedly retains some of the revenue raisers put in place by the ACA, including the "Cadillac" excise tax. Rather than repealing the 40% "Cadillac" excise tax on high-cost healthcare plans which was set to begin in 2020, the tax would instead apply beginning in 2025. In addition, the bill does not repeal the codification of the economic substance doctrine and the associated 20% and 40% taxpayer penalties.
The American Health Care Act also proposes the use of refundable tax credits for individuals without government-provided or employer-provided health insurance to purchase coverage. The credit would be adjusted for age, starting at $2,000 for individuals under the age of 30 with incremental increases thereafter, capped at $4,000 for individuals age 60 or older. For families, the credit would be capped at $14,000 per household. Phase outs would apply to the credit for individuals making more than $75,000 per year and joint-filers making more than $150,000 per year. The bill would also expand limits on contributions to health savings accounts.
The House Ways and Means Committee has scheduled a full committee markup of the American Health Care Act for March 8, 2017.
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1 Text of the American Health Care Act is available here.