May 11, 2017
On May 4, the U.S. House of Representatives voted 217 to 213 to pass the American Health Care Act of 2017 (AHCA) to repeal the Affordable Care Act (ACA). The tax provisions in the bill are substantially unchanged from the legislation as originally introduced, but some of the effective dates have been modified and include the following items:
The 3.8 percent tax on net investment income is repealed for tax years beginning on or after Jan. 1, 2017. The Medicare tax increase of 0.9 percent for wages and self-employment income in excess of $200,000 ($250,000 for married taxpayers) is repealed for tax years beginning on or after Jan. 1, 2023.
Effective retroactively to Jan. 1, 2016:
- The individual health insurance mandate effectively is repealed by the penalty amount being lowered to $0; however, an additional 30 percent penalty premium on purchased insurance is imposed for individuals who do not maintain continuous coverage (the new 30 percent penalty premium proposed to take effect in 2019).
- The employer health insurance mandate effectively is repealed by the penalty amount being lowered to $0.
Other changes:
- Eliminates the limitation on the deductibility of wages in excess of $500,000 paid to officers, directors, and employees of covered health insurance providers for tax years beginning on or after Jan. 1, 2017
- Repeals the 10 percent excise tax on the tanning industry beginning July 1, 2017
- Repeals the excise tax on branded prescription drugs paid by prescription drug importers and manufacturers beginning Jan. 1, 2017
- Repeals the health insurance provider annual fee beginning Jan. 1, 2017
- Eliminates the small-employer health insurance credit in 2020 and places limitations on the credit prior to its elimination
- Restores a provision allowing the use of health savings account (HSA), health reimbursement arrangement, flexible spending account (FSA), and medical savings account funds to pay for over-the-counter medication tax free for tax years beginning on or after Jan. 1, 2017
- Repeals the limitation on contributions made to an FSA for tax years beginning on or after Jan. 1, 2017
- Repeals the medical device excise tax beginning Jan. 1, 2017
- Repeals the elimination of the deduction for the Medicare Part D subsidy for tax years beginning on or after Jan. 1, 2017
- Increases maximum contributions to HSAs to the amount of the deductible and out-of-pocket limitation for tax years beginning on or after Jan. 1, 2018
- Allows spouses to make catch-up contributions to HSAs for tax years beginning on or after Jan. 1, 2018
In addition, the act:
- Eliminates premium tax credits beginning in 2020 and allows for premium tax credits to be used for insurance coverage not purchased from an exchange in limited circumstances in 2018 and 2019
- Places a moratorium on the excise tax for high-cost employer-sponsored health insurance for tax years beginning after Dec. 31, 2019, and before Jan. 1, 2026
- Reduces the threshold for itemized deductions for medical expenses to 5.8 percent of adjusted gross income from 10 percent for tax years beginning on or after Jan. 1, 2017
The legislation now moves to the Senate, which has indicated it may consider its own healthcare legislation in lieu of the AHCA. It remains to be seen what tax provisions, if any, will be in the Senate legislation.