Monday, May 29, 2017

Key Tax Changes in the American Health Care Act

By: Cyndi Moore 

The American Health Care Act ("AHCA"), passed by the House of Representatives on May 4, 2017, repeals many of the taxes added by the Affordable Care Act ("ACA") and makes changes to other tax rules.  Some of the notable changes proposed to be made to the Internal Revenue Code are:

            1.         The individual mandate to maintain health insurance and the employer mandate to offer health insurance remain in the Code, but the taxes are "zeroed out" effective retroactively to 2016.  
            2.         The following taxes, fees, credits and limitations are repealed as of the year shown below:  
·         The net investment income tax (NIIT) (2017)
·         The 0.9% additional Medicare tax (2023)
·         The small employer health insurance credit (2020)
·         The $2500 limitation on contributions to a health flexible spending account (FSA) (2017)
·         The annual fee on branded prescription drug sales (2017)
·         The medical device excise tax (2017)
·         The annual fee on health insurance providers (2017)
·         The elimination of a deduction for expenses allocable to the Medicare Part D subsidy (2017)
·         The 10% tanning salon tax (June 30, 2017)
            3.         The "Cadillac" tax on high cost health plans is delayed until 2026. 
            4.         Individuals may be reimbursed for over-the-counter medications under a health savings account (HSA), health FSA or a health reimbursement arrangement (HRA) (2017). 
            5.         The penalty tax on withdrawals from an HSA not used for a qualified medical expense is reduced from 20% to 10% (2017).
6.         The bill would replace the current ACA premium tax credit with a new refundable, advanceable tax credit effective January 1, 2020.  The credit could be applied toward the cost of any eligible health insurance coverage, whether purchased on or off the Exchange.  The credit is age-based as follows:

Age
Annual Credit
Under 30
$2,000
30 – 40
$2,500
40 – 50
$3,000
50 – 60
$3,500
60 and over
$4,000

The maximum credit for a family is $14,000. The credit is adjusted each year by CPI + 1%.
The credit is phased out depending on the individual’s modified adjusted gross income (MAGI) for the year.  It begins phasing out for an individual with income of $75,000 ($150,000 for joint filers) by $100 for every $1,000 in income above those thresholds.  The MAGI dollar limitations are also indexed for inflation beginning in 2021.              To be eligible to claim the credit, the individual must be covered by “eligible health insurance,” not be eligible for “other specified coverage” (including employer coverage or a government sponsored health program) and be a U.S. citizen or a qualified alien.  

7.         The bill would make the following changes to health savings accounts, effective in 2018:
§  The maximum contribution to an HSA would be increased to the out-of-pocket maximum (in 2017, $6,550 for self-only and $13,100 for family coverage).  Under current law, HSA contributions are limited to $3,400 for self-only and $6,750 for family coverage.
§  Both spouses could make a “catch-up” contribution to the same HSA.  Under current law, each spouse must have his or her own HSA.
 
§  If an HSA is established within 60 days after coverage under a high deductible plan begins, the individual could be reimbursed for medical expenses incurred within that 60-day period.  Under current law, an individual cannot be reimbursed for any expense incurred before the HSA is established.

The bill now moves to the Senate where significant changes are expected. 

 

Please contact Cyndi Moore in the Troy, Michigan office at 248-433-7295 or any other member of the Dickinson Wright employee benefits group for further information.