Small Business Taxes & Management

Special Report

American Health Care Act--Tax Implications


Small Business Taxes & ManagementTM--Copyright 2017, A/N Group, Inc.


The American Health Care Act of 2017 (AHCA) has passed the House. This is far from law. The bill will have a much tougher time in the Senate and it's unlikely it will be passed there without changes. And it is possible it won't make it through the Senate in any form. The provisions much discussed in the news such as dealing with existing conditions, funding for Planned Parenthood, Medicaid funding, etc. are the provisions most likely to receive the bulk of the attention in the Senate.

But there are a number of provisions in the bill that affect taxes that were enacted as part of the Affordable Care Act (ACA). They have received little or no attention by the press, but they have important implications for individual and business taxpayers. A number of them also stand a good chance of passage. The discussion below includes the provisions that will affect most businesses and indviduals. It's too early to talk about tax planning and most of the changes need little explanation.

Net Investment Income Tax

This could be the one of most consequence to high-income taxpayers. The bill would repeal the 3.8% tax on net investment income. The tax puts a 3.8 percent levy, in addition to any other taxes, on dividends, interest, capital gains, rental income, and income from partnerships and S corporations where the taxpayer does not materially participate in the operation of the business. The bill would repeal the tax for taxable years starting in 2017.

Small Business Tax Credit

Beginning in 2020 the new law repeals the small business tax credit for providing a qualified health plan. Beginning in 2018 the credit will not be available to a plan the includes coverage for elective abortions.

Penalty for Failure to Have Insurance

Obamacare contained a mandate requiring individuals to have health insurance or pay a penalty. The bill rescinds that effective for months beginning after December 31, 2015.

Employer Mandate

Under the ACA many employers were required to provide health insurance to employees or pay a penalty. The bill effectively eliminates this requirement by setting the penalty at zero, effective for months beginning after December 31, 2015.

Over-the-Counter Medications and HSAs

The ACA provides that over-the-counter medications are not included in the definition of qualified medical expenses that can be paid using health savings accounts under the same rules as other medical expenses. The bill changes the definition of qualified medical expenses effectively repealing the 20 percent penalty on such distributions, beginning with distributions after December 31, 2106.

Flexible Savings Accounts

Current law limits contributions to health Flexible Savings Accounts to $2,500 with an annual adjustment for inflation. The bill would eliminate this provision for tax years beginning after December 31, 2016.

Health Savings Account Contributions

The bill would increase allowable contributions to a Health Savings Account. The maximum amount that can be contributed per year would equal the limit of the annual deductible and out-of-pocket expenses for a high deductible health plan. That would be $13,100 for family coverage or $6,550 for an individual for 2017. These amounts are indexed for inflation. In addition, the bill would allow catch-up contributions by both spouses to a single Health Savings Account.

Medical Expense Deduction Threshold

Medical expenses are deductible on Schedule A, but only those that exceed a threshold equal to 10 percent of a taxpayer's adjusted gross income. A provision allows taxpayers 65 or older to use a 7.5 percent threshold for taxable years before 2017. (Prior to Obamacare the threshold was 7.5 percent.) The bill would lower the threshold to 5.8 percent for all taxpayers. The provision would apply to taxable years beginning after December 31, 2016.

Medicare Tax

The ACA introduced a 0.9 percent surtax on the Medical Hospital Insurance based on an employee's income or a self-employed person's net earnings. The tax applies to individuals with wages and self-employment income in excess of $250,000 for a married couple filing jointly and $200,000 for a single individual. The bill would repeal the for taxable years beginning in 2023.

Medical Device Tax

The bill repeals the 2.3 percent excise tax on certain medical devices, for tax years beginning after December 31, 2016

Health Insurance Tax Credit

The new law would provide a refundable tax credit for the purchase of qualified major medical health insurance. Individuals who are not offered health insurance from an employer and do not have access to a government sponsored health insurance program would be eligible. The credit is based on the age of the participant, ranging from $2,000 for those under 30 to $4,000 for those over 60. The credits apply to each individual in a family, but no ore than $14,000. The credits phase out for taxpayers with income over $150,000 (married, joint) and $75,000 (single).

Cadillac Plans

Under Obamacare certain employer-provided high-cost plans were subject to an excise tax, beginning in 2020. Under the AHCA the tax would be delayed so that it would only apply to plans for tax years beginning after December 31, 2015.

Tanning Tax

The bill would repeal the 10 percent sales tax imposed on indoor tanning services.


Copyright 2017 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536

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--Last Update 05/09/16