By Professor Annette Nellen*
San Jose State University Graduate Tax Program
So far in 2016, there have been over ten legislative proposals to modify certain tax provisions of the ACA. Some proposals call for expansion of Health Savings Accounts. And as in past years, legislation to repeal the ACA was passed. This time by both House and Senate. That bill (H.R. 3762) was vetoed by President Obama and Congress was unable to override that veto.
Summarized below are the tax-related bills introduced dealing with the ACA and health care. A few have been passed by the House and for several, there were hearings for which the Joint Committee on Taxation provided background on the bill and revenue estimates. Given the shortened congressional calendar for this election year, it is uncertain whether the full Congress will take on any of these bills and if yes, whether they will be signed into law. Regardless, these bills do indicate the thinking of many in Congress regarding taxes and health care laws. Links to the bills and reports are included below.
Also, as part of the House Republican “A Better Way” effort, a report on health care reform was issued in June 2016. A summary is included here with links to the full report.
- a. R. 210, Student Worker Exemption Act, would exclude full-time students who work for the university to be counted as a full-time employee for shared responsibility obligations of that institution. 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 the cost of this change is less than $500,000 per year (JCX-59-16; 6/14/16). Also see JCT description at JCX-58-16; 6/14/16.
- b. R. 1270, Restoring Access to Medication and Improving Health Savings Act, “repeals provisions of the Internal Revenue Code, added by the Patient Protection and Affordable Care Act, that limit payments for medications from health savings accounts, medical savings accounts, and health flexible spending arrangements to only prescription drugs or insulin (thus allowing distributions from such accounts for over-the-counter drugs)” (CRS summary). The Joint Committee on Taxation estimates the bill will be almost revenue neutral (raising $2.1 billion over ten years), due to the projected revenue generated from recovering improper Obamacare subsidies (JCX-62-16; 7/6/16).H.R. 1270 passed in the House on 7/6/16 (243-164). Congressman Levin (D-MI) issued a statement objecting to the expanded HSA provision as being inequitable (7/6/16 press release). Per CBO and JCT, the expanded HSA provision is estimated to cost $20.5 billion over ten years).
- c. R. 2911, Small Business Healthcare Relief Act, would modify various provisions to enable small employers (fewer than 50 employees) to offer HRAs. Per the Congressional Research Service (CRS) summary:“This bill amends the Internal Revenue Code and the Employee Retirement Income Security Act of 1974 (ERISA) to allow an employer with fewer than 50 employees that does not offer group health insurance coverage to establish a health reimbursement arrangement. Under the arrangement, funds contributed by an employer are excluded from the employer’s taxable income and are used to pay or reimburse employees for medical care expenses, including premiums for individual health insurance coverage or Medicare supplemental insurance.Such a reimbursement arrangement: (1) must not pay premiums for an employee covered by a family member’s coverage, (2) must be offered to all eligible employees on the same terms and may only vary based on the number of individuals covered, and (3) is not required to provide continuation coverage.Employer contributions to a reimbursement arrangement are not included in an employee’s gross income if the employee was covered by the reimbursement arrangement for more than nine months of the year. Employees covered for less than nine months have a percentage of employer contributions included in their gross income, with exceptions.
An employee offered affordable individual health insurance coverage under a reimbursement arrangement is not eligible for a premium assistance tax credit.
Employers must report contributions to a reimbursement arrangement on their employees’ W-2.
This bill amends the Public Health Service Act to exempt reimbursement arrangements from requirements for health insurance coverage. Insurance offered under a reimbursement arrangement remains subject to the requirements.”
- d. H.R. 3080, Tribal Employment and Jobs Protection Act, removes “tribal employers” from the definition of “applicable large employer” for purposes of the employer mandate (§4980H). On 6/15/16 by voice vote following a mark-up session, the House Ways and Means Committee ordered this bill to be reported. Also see JCT report (JCX-56-16; 6/14/16).
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.
The originators of the Affordable Care Act (ACA) never intended to encourage the use of Health Savings Accounts, (HSA). After all, ACA’s proponents view HSAs as a tax break for the wealthy. But they are trending upward across the general population with 16 million total accounts in 2015, (22 percent yearly increase) containing over $30 billion in assets – figures that are expected to double in the next few years.
What is driving HSA adoption? Answer: Paying for health costs with tax advantaged dollars.
Health insurance deductibles and out-of-pocket costs have skyrocketed under the ACA, leaving employees to pick up more and more of their health care costs. The politically correct term for this phenomenon is an increase in the “employee cost share,” which doesn’t make it sound so bad.
The latest – The Internal Revenue Service (IRS) issued Notice 2016-4 on December 28, 2015 which announced a filing extension for Forms 1094B/1095B. The revised deadline for employers to provide Form 1094B to employees is March 31, 2016; and filing Form1095B to the IRS is extended to May 31, 2016 for paper filing, and June 30, 2016 for e-filing. Notice 2016-4 also extends the filing requirement for health insurance carriers to provide Form 1095C to covered employees to March 31, 2016
Background – Employers with 50 or more full-time (equivalent) employees in 2015, must file Forms 1094-C and 1095-C. The purpose of this filing is enforcement of the employee and employer mandates of ACA. This information is required under sections 6055 and 6056 regarding offers of health coverage and enrollment in health coverage for employees.
According to the IRS, taxpayers are not required to attach Form 1095C as proof of health care coverage when filing their tax return, but note that employees should keep the 1095C they receive from their employer and 1095B they receive from their insurance carrier as proof of coverage.
For further information regarding Forms 1094B and 1094C, the IRS has provided a Questions and Answers to guide you through the process of filing these forms. Click below for the forms and instructions: