By Professor Annette Nellen*
San Jose State University Graduate Tax Program
- e. H.R. 3590, Halt Tax Increases on the Middle Class and Seniors Act, would change the medical deduction threshold back to 7.5% of AGI for all taxpayers. The threshold for AMT purposes would remain at 10%. On 6/15/16 by voice vote following a mark-up session, the House Ways and Means Committee ordered this bill to be reported.The Joint Committee on Taxation estimates that this change would cost about $4 billion per year by 2024 and cost $33 billion over ten years (2017-2026). [JCX-61-15; 6/14/16]
- f. H.R. 3762 included provisions to repeal the tax pieces of the ACA including the economic substance doctrine and tanning excise tax. The bill was passed in the House on 10/23/15 (240-189) and in the Senate on 12/3/15 (52/47). The President vetoed it on 1/8/16 (veto message included in Congressional Record of 1/8/16, page H211) and Congress failed to override the veto on 2/2/16.
- g. H.R. 4723, Protecting Taxpayers by Recovering Improper Obamacare Subsidy Overpayments Act, repeals the Premium Tax Credit (PTC) provision of §36B(f)(2) that limits the amount of PTC that has to be repaid when an insured receives too much PTC in advance (based on their household income). The current version and proposed change still requires all of the PTC to be repaid if one’s household income exceeds 400% of the federal poverty line.House Report 114-475 states that this change is needed due to fiscal concerns and the need to reduce “improper payments resulting from waste, fraud, and abuse.” The bill is estimated to generate $61.6 billion over ten years. The dissenting viewpoint included that the change might scare some people away from seeking a PTC.Also see Joint Committee on Taxation report – Description of An Amendment In The Nature Of A Substitute To The Provisions Of H.R. 4723, The “Protecting Taxpayers By Recovering Improper Obamacare Subsidy Overpayments Act” (JCX-12-16 (3/15/16)).Observation: The dissenting view in the House report makes no mention of the reality that if one’s income exceeds 400% of the FPL, even if it was estimated earlier in the year that it would not, the entire PTC has to be repaid. Per the dissenting view:“The Joint Committee on Taxation estimates that H.R. 4723 will result in 220,000 to 250,000 Americans losing health coverage. This is because they would rather forgo coverage than be faced with a large year-end tax bill.”Most likely, individuals do not know that if they receive too much PTC in advance but their household income for the year remains at or below 400% of the FPL that they may not have to repay all of what they would otherwise be required to? Thus, it is questionable if this change would cause people to forego buying insurance on the Exchange. In contrast, it is more likely that individuals will forego health insurance due to the risk of having to repay all of the advance PTC should their income go up later in the year such that is exceeds 400% of the FPL? This seems to be the bigger issue (that unexpected income increases later in the year cause one’s household income to exceed 400% of the FPL requiring that all of the advance PTC be repaid).
- h. H.R. 4217 would amend the definition of household income for the PTC (§36B(d)(2)) to not include any income from converting an IRA to a Roth IRA.
- i. R. 5284, World’s Greatest Healthcare Plan Act of 2016, is a 117-page proposal that modifies some, but not all of the ACA provisions and adds several new provisions. For example, H.R. 5284 prospectively repeals the individual mandate (§5000A) and the employer mandate (§4980H). It provides options to states that per the introduction to the bill will provide “greater flexibility” regarding health care options. The bill also promotes health savings accounts (HSAs).Per a press release (5/23/16) of co-sponsors Congressman Pete Sessions (R-TX) and Senator Cassidy (R-LA), the bill “would not repeal or replace the ACA — people can keep their current coverage if they choose to — but would be an alternative option. It would scrap the employer and the individual mandates, and instead provide tax benefits to every U.S. citizen of $2,500, plus a $1,500 tax benefit for every dependent minor, as long as the minors are also U.S. citizens. A family of four would receive a total of $8,000.”
- j. H.R. 5445 would “improve” the rules regarding health savings accounts such as by increasing the contribution limits. On 6/15/16 by voice vote following a mark-up session, the House Ways and Means Committee ordered this bill to be reported. See the Joint Committee on Taxation description at JCX-53-16 (6/14/16).
- k. H.R. 5447, Small Business Health Care Relief Act, would modify rules for employer-provided group health plans. On 6/15/16 by voice vote following a mark-up session, the House Ways and Means Committee ordered this bill to be reported. It was passed in the House by voice vote on 6/21/16.Per the Joint Committee on Taxation (JCX-47-16; 6/14/16) [footnotes omitted]:“Under the proposal, a “qualified small employer health reimbursement arrangement” (referred to herein as a QSEHRA) is generally not a group health plan under the Code, ERISA or PHSA and thus is not subject to the group health plan requirements. A QSEHRA is defined as an arrangement that (1) is provided on the same terms to all eligible employees of an eligible employer; (2) is funded solely by the eligible employer and no salary reduction contributions may be made under the arrangement; (3) provides, after an employee provides proof of minimum essential coverage, for the payment or reimbursement of medical expenses of the employee and family members; and (4) the amount of payments and reimbursements under the arrangement for a year cannot exceed specified dollar limits. In the case of an individual not covered by the arrangement for all 12 months of a year, the dollar amounts are prorated to reflect the number of months of coverage.”…“Because a QSEHRA is not a group health plan, coverage under a QSEHRA is not minimum essential coverage and does not satisfy the requirement that an individual have minimum essential coverage. Under the proposal, if an employee’s medical care expenses are paid or reimbursed under a QSEHRA and the employee does not have minimum essential coverage for the month in which the medical care was provided, the amount of the payment or reimbursement for those expenses is includible in the employee’s income.”
- l. H.R. 5452, Native American Health Savings Improvement Act, amends §223 to provide that an individual “receiving hospital care or medical services under a medical care program of the Indian Health Service or a tribal organization does not disqualify an individual from being eligible for a health savings account” (CRS summary). This was passed in the House on 6/21/16 by voice vote. Also see JCT description, (JCX-51-16; 6/14/16).
- m. H.R. 5458, Veterans TRICARE Choice Act, adds coverage under TRICARE to the list of disregarded coverage at §223(c)(1)(B). On 6/15/16 by voice vote following a mark-up session, the House Ways and Means Committee ordered this bill to be reported. As reported by sponsors, Congressmen Stewart (R-UT) and Tulsi (D-HI), this proposal gives veterans the ability to opt to “pause” their TRICARE benefits so that they can participate in an HSA program (Congressman Stewart press release of 2/11/15). Also see JCT description at JCX-49-16; 6/14/16.
- n. House Republican’s “A Better Way” Health Care Blueprint – In June 2016, the House Republicans issued plans for 2017 and beyond in six areas.
- National security
- The economy
- The Constitution
- Health care
- Tax reform
Tax changes included in the health care report include:
- a. Repeal Obamacare (ACA).
- b. Provide a refundable tax credit to help individuals purchase insurance.
- c. Preserve the exclusion for employer sponsored health insurance but cap the benefit. The report notes that per the Congressional Budget Office, the exclusion increases premiums by about 10 to 15%. The report also notes that the exclusion holds down wages as it encourages people to take compensation in the form of health insurance rather than regular wages. The report also notes that the cost of this exclusion (in foregone income and payroll taxes) is about $266 billion for fiscal year 2016 making it the “third largest health expenditure, after Medicare and Medicaid.” No level is stated for the proposed cap. The report does state: “our plan proposes to cap the exclusion at a level that would ensure job-based coverage continues unchanged for the vast majority of health insurance plans.” (report page 15)
Per FAQs about the plan:
“Q: How is this tax credit to support making coverage portable any different from Obamacare’s?
A: Our plan implements a flat, simple form of assistance that would grow the economy and ensure it always pays to work:
- • Credits are not income-tested. As a result of Obamacare’s poor design and incentives, many Americans have fallen into a coverage gap between their state’s Medicaid eligibility criteria and those for the Obamacare subsidies. Likewise, many middle-class families find themselves with little or no assistance to purchase increasingly expensive health insurance. Our plan would provide assistance to them.
- • Credits are available to be used on any state-approved plan, instead of being tied to the broken Obamacare exchanges.
- • Credits are flat. Because they are not tied to premium costs, they will act as a check to insurers. Instead of a system that chases ever increasing health care costs with ever increasing subsidies, our plan provides a fixed amount that can be used in more places and on more choices.
Q: Are you destroying employer-based health insurance by putting a cap on the job-based exclusion?
A: No, just the opposite. Our policy is designed to protect the job-based market while still taking steps to make the tax code fairer and lower health care costs.
Q: How is this plan better than the Cadillac tax?
A: The Cadillac tax is a crude, complex, and flawed policy. And it—like the rest of the President’s health care law—must be repealed and replaced. Our plan provides relief for lower-income workers relative to current law, takes into account regional variations, and exempts employees’ HSA contributions from counting toward the cap.”
*Annette Nellen, Esq., CPA, CGMA, is a tax professor and director of the MST Program at San José State University. She is an active member of the tax sections of the AICPA, ABA, and California State Bar. She is the vice chair of the AICPA Tax Executive Committee and a member of the AICPA Tax Reform Task Force. She has several reports on tax policy and reform and a blog. She co-instructs with Gary McBride, the CalCPA annual federal and California tax updates on individuals and businesses and estates that are offered throughout the state in December and January.