House passes health care bill with payroll related items

The House has passed the American Health Care Act of 2017, H.R. 1628, on May 4, 2017. The bill moves to the Senate and will only require 51 votes to pass. The payroll-related provisions include:

Repeal of tax on employee health insurance premiums and health plans

The excise tax on high cost employer-sponsored health coverage will not apply for any taxable period beginning after December 31, 2019, and before January 1, 2025. The tax will apply only for taxable periods beginning after December 31, 2024, effective on enactment.

Over-the-counter medicine tax repealed

The definition of qualified medical care would be changed for purposes of the exclusions for reimbursements for medical care under employer-provided accident and health plans (including health flexible spending accounts (FSAs) and health reimbursement arrangement (HRAs)) and for distributions from HSAs or Archer medical savings accounts (MSAs) used for qualified medical expenses to include over-the-counter medicine that is not prescribed by a physician. Amounts paid from a health FSA or HRA, or funds distributed from an Health Savings Account (HSA) or an Archer MSA, to reimburse a taxpayer for over-the-counter medicine, such as nonprescription aspirin, allergy medicine, antacids, or pain relievers, will be excluded from income in accordance with the general rules associated with those health-related savings and reimbursement vehicles. The provision would be effective (1) in the case of HSAs and MSAs, amounts paid with respect to taxable years beginning after December 31, 2017, and (2) in the case of health FSAs and HRAs, expenses incurred with respect to taxable years beginning after December 31, 2017.

HSA tax decreased

The additional tax on HSA distributions not used for qualified medical expenses would be 10% of the distributed amount, and the additional tax on Archer MSA distributions not used for qualified medical expenses would be 15% of the distributed amount, effective for distributions made after December 31, 2017.

Repeal of limitations on contributions to FSAs

Currently, in order for a health FSA to be a qualified benefit under a cafeteria plan, an employee’s salary reduction contribution cannot exceed a dollar limit ($2,600 for 2017). This limitation on health FSA salary reduction contributions is repealed, effective for taxable years beginning after December 31, 2017.

Repeal of medicare tax increase

The 0.9% additional medicare tax is repealed, effective with respect to remuneration received after, and taxable years beginning after, December 31, 2017.

Contribution limit to HSAs increased

The basic limit on aggregate HSA contributions for a year would be increased to equal the maximum on the sum of the annual deductible and out-of-pocket expenses permitted under a high deductible health plan, which are, for 2017, $6,550 in the case of self-only coverage and $13,100 in the case of family coverage. As under present law, basic contribution limits are increased by $1,000 for an eligible individual who has attained age 55 by the end of the taxable year. In addition, as under present law, the annual HSA contribution limit for an individual is generally the sum of the limits determined separately for each month (that is, 1/12 of the limit for the year, including the catch-up limit, if applicable), based on the individual’s status and health plan coverage as of the first day of the month effective for taxable years beginning after December 31, 2017.

Catch-up HSA contributions

If both spouses of a married couple are eligible for catch-up contributions and either has family coverage, the annual contribution limit that can be divided between them would include catch-up contribution amounts of both spouses. For example, the spouses could agree that their combined basic and catchup contribution amounts are allocated to one spouse to be contributed to that spouse’s HSA. In other cases, as under present law, a spouse’s catch-up contribution amount would not be eligible for division between the spouses. The catch-up contribution must be made to the HSA of that spouse, for taxable years beginning after December 31, 2017.

Employer mandate

The amount of the assessable penalties under the employer mandate is zero. The provision effectively repeals the employer mandate, and would be retroactively effective to months beginning after December 31, 2015.

Individual mandate

The amount of the tax for failure to maintain minimum essential coverage is zero. This provision effectively repeals the individual mandate and would be retroactively effective to months beginning after December 31, 2015.

Small business tax credit

The small employer health insurance credit would not be available with respect to a qualified health plan that includes coverage for abortions, other than an abortion necessary to save the life of the mother or an abortion with respect to a pregnancy that is the result of an act of rape or incest. For this purpose, the treatment of any infection, injury, disease, or disorder that has been caused by or exacerbated by the performance of an abortion is not considered an abortion. The provision disallowing the credit with respect to a qualified health plan that provides coverage with respect to abortions is effective for taxable years beginning after December 31, 2017. The provision repealing the small employer health insurance credit is effective for taxable years beginning after December 31, 2019.
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