Taxes and Health Care: Still an Uncertain Future
Wolters Kluwer Examines Tax Changes Related to Health Care Impacting 2018 Tax Returns
(NEW YORK, NY, March 2019) — In 2017, President Trump’s Administration signaled its desire to completely repeal and replace the Affordable Care Act, either in its entirety or piecemeal. While multiple efforts to repeal the act failed in Congress, certain provisions have been impacted by other legislation.
The following outlines tax changes related to health care that impact 2018 tax returns. However, the administration will likely continue to tinker with health care as we move forward.
The individual mandate remains in place through 2018 but has been repealed for 2019 onward by the Tax Cuts and Jobs Act. For 2018, the penalty for individuals for failure to obtain health insurance is the greater of $695 per adult or 2.5 percent of household income.
- Federal Court Ruling: A Texas federal judge has ruled that the Affordable Care Act is unconstitutional due to the repeal of the individual mandate. The decision is stayed pending appeal
- Filing Deadlines: The IRS extended the January 31, 2019 deadline for employers to issue 2018 Form 1095-C to employees and the deadline for self-insured small employers, insurers and others issuing 2018 Form 1095-B to March 4, 2019
Medical Expense Deduction
Due to temporary relief in the Tax Cuts and Jobs Acts, for 2017 and 2018 all taxpayers, regardless of age, may claim an itemized deduction for unreimbursed medical expenses, to the extent such expenses exceed 7.5 percent of their adjusted gross income. Starting in 2019, the threshold will go back to 10 percent.
Medical Device Excise Tax
The government funding legislation signed by President Trump on January 22, 2018, suspended the 2.3 percent tax on the sale of certain medical devices for 2018 and 2019 and will commence again for sales beginning on January 1, 2020
The government funding legislation also delayed implementation of the excise tax on high-cost, employer-sponsored health coverage, the so-called “Cadillac” tax. Originally scheduled to come into effect for tax years beginning after December 31, 2017, it is now scheduled to come into effect for tax years beginning after December 31, 2021.
Levy on Medicare Payments
Another health care-related change brought about by the PATH Act increased the portion of a payment owed to a Medicare provider or supplier that may be subject to a continuous IRS levy to collect an unpaid tax liability from 30 percent to 100 percent. The change is effective for payments made after October 13, 2015.
Health Reimbursement Arrangements
The 21st Century Cures Act, enacted on December 13, 2016, permits small businesses that had been offering health reimbursement arrangements to their employees (under which the business reimburses the employee for individually obtained health insurance coverage, and that were forced to stop under threat of penalties imposed under the Affordable Care Act) to now return to health reimbursement arrangements if some additional requirements are met. The new requirements for Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) are as follows:
- Only employers that are not Applicable Large Employers (ALEs) under the Affordable Care Act (i.e., have less than an average of 50 full-time or full-time equivalent employees for the prior year) are eligible to establish QSEHRAs.
- The employer must not otherwise offer a group health plan
- The QSEHRA must be offered to all full-time employees who have completed at least 90 days of service and are at least 25 years of age. Certain exclusions are provided for employees who are nonresident aliens, part-time workers, seasonal workers, or covered by a collective bargaining agreement
- THE QSEHRA must be funded exclusively with employer contributions – no employee contributions
- QSEHRA contributions are limited to $4,950 per year for single coverage, $10,000 per year for family coverage, with the possibility provided for certain variations based on local insurance costs, age or family size
- The employer may only reimburse qualified medical expenses, including health insurance premiums
- For the QSEHRA reimbursements not to be taxable to the employee, the employee must provide proof that the employee and any included family members have obtained minimum essential coverage from a health insurance exchange or other third-party provider
- A notice must be provided to employees that includes the amount of the employee’s benefit, a statement that the benefit must be disclosed to any health insurance exchange if the employee is claiming advance premium tax credits, and a warning to the employee of possible tax penalties if the employee and any applicable family members do not have minimum essential coverage
The Cures Act also waives past penalties to which a small business may have been subject for offering health reimbursement arrangements in violation of the Affordable Care Act.