Taxes and Health Care: Still an Uncertain Future
Wolters Kluwer Examines Tax Changes Related to Health Care Impacting 2019 Tax Returns
(NEW YORK, NY, February 2020) — 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 2019 tax returns. However, the administration will likely continue to tinker with health care as we move forward.
Individual Mandate. The individual mandate has been repealed for 2019 onward by the Tax Cuts and Jobs Act; however, many of the reporting requirements remain.
- Federal Court Ruling: A Texas federal judge has ruled that the Affordable Care Act is unconstitutional due to the repeal of the individual mandate. On appeal, the Fifth Circuit returned the case to the trial judge for a redetermination of what if any portions of the Affordable Care Act can survive the repeal of the individual mandate
- Filing Deadlines: While Congress repealed the individual mandate, it failed to repeal many of the related reporting requirements. The deadline for distributing Form 1095-C to employees is extended to March 2, 2020
Medical Expense Deduction
Under the Further Consolidated Appropriations Act, 2020, 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 through 2020. Starting in 2021, the threshold will go back to 10 percent.
Medical Device Excise Tax
The Further Consolidated Appropriations Act, 2020 repealed the 2.3 percent tax on the sale of certain medical devices which had been scheduled to commence again for sales beginning on January 1, 2020.
The Further Consolidated Appropriations Act, 2020 has repealed the excise tax on high‑cost, employer‑sponsored health coverage, the so‑called “Cadillac” tax.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 had previously been delayed until tax years beginning after December 31, 2021.
Health Insurance Provider Fee.
The Further Consolidated Appropriations Act also repealed the fee on health insurance providers, which had previously been suspended until 2020.
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 $5,150 per year for single coverage for 2019 ($5,250 for 2020), $10,450 per year for family coverage for 2019 ($10,600 for 2020), 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