The future of the Affordable Care Act (ACA) and related taxes is now in the Senate following passage of the American Health Care Act (AHCA) in the House this April. The Senate unveiled their discussion draft, Better Care Reconciliation Act of 2017, on June 22, which contains many tax provision similarities to the House bill in efforts to repeal ACA taxes.
Note: At the time this article was published, the draft discussion bill in the Senate had just been released and could be subject to many changes. A Congressional Budget Office (CBO) report, issued late May, predicted the House-passed AHCA would cause 23 million fewer individuals to be covered. The Senate is currently awaiting the CBO report based on their bill, which is expected to be released early the week of June 26. Historically, legislation has moved slower in the Senate than in the House. However, the Senate draft could be voted on shortly after the CBO report is available.
As approved by the House, the AHCA repeals most of the ACA’s taxes and delays the remainders. The repeal includes the net investment income (NII) tax, the excise tax on medical devices, and the health insurance provider fee, among others, retroactively to the start of 2017. It also delays repeal of the additional Medicare Tax until 2023. Further, the House-passed version of the AHCA delays the ACA’s excise tax on high-dollar health plans.
The proposed Senate draft repeals all of the ACA’s taxes, with the exception of the Cadillac tax on expensive plans (the repeal would be delayed until 2026). Much like the House, the Senate bill would repeal the NII tax, retroactively to January 1, 2017. In addition, other ACA taxes would be repealed (with delayed repeal in some cases). This includes, but is not limited to, the additional Medicare tax, medical device tax, indoor tanning tax and health insurance provider’s fee.
Individuals who obtain health insurance through the ACA Marketplace may qualify for a tax credit to help offset the cost of coverage. The House-passed version of the AHCA also revises the Code Sec. 36B premium assistance tax credit to vary depending on the taxpayer’s age, among other modifications.
Much like the House version, the Senate proposal would revise the 36B credit to vary depending on age and also include other modifications to the credit. The penalty for erroneous claims of the credit would increase under the Senate proposal.
Just before Congress’ Memorial Day recess, the House Ways and Means Committee approved several bills related to the House version of the AHCA. One bill would allow individuals who have certain types of COBRA coverage to claim the revised Code Sec. 36B credit. Another bill would disallow advance payments of the credit unless the recipient is a citizen or national of the U.S. or an alien lawfully present in the U.S.
The U.S. Department of Health and Human Services (HHS), the Department of Labor (DOL) and the IRS administer different parts of the ACA. In May, HHS announced changes to the direct enrollment process for the ACA Marketplace. HHS also announced that online enrollment for the Small Business Health Options Program (SHOP) would be through an agent or broker.
Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.