Fiscal Fact No. 218
In order to finance $940 billion in new health care spending over the next ten years, the health care bill that the House of Represenatives passed on Sunday evening contains many spending cuts to Medicare, along with many taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. increases that are set to go into effect over the next decade. Courtesy of the Joint Committee on Taxation's scoring of each of the provisions in the bill and the CBO, this Tax Foundation Fiscal Fact contains a timeline of when each of the tax provisions in the bill is set to go into effect. Note this list includes provisions in the reconciliation bill combined with the Senate bill and not just the Senate bill that Pres. Obama will sign into law this week.
Some of the minor provisions are actually retroactive, whereas others such as the tax on high-cost health insurance plans (the so-called "Cadillac taxThe Cadillac Tax is a 40 percent tax on employer-sponsored health care coverage that exceeds a certain value. The aim: to curb health-care cost growth, reduce favorable tax treatment of employer-provided insurance, and help fund the Affordable Care Act (ACA). It was repealed in late 2019 before taking effect. ") don't go into effect until 2018. The increased Medicare tax that would for the first time expand part of payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. es to investment income, as well as incorporate filing status into a tax unit's liability, would go into effect in 2013.
All starting dates are January 1 of that year, unless otherwise noted. This list is fairly exhaustive, meaning it includes virtually every tax provision. The major provisions, as defined as those projected to raise or lose more than $10 billion within the ten year budget window, are denoted in red.
Retroactive provisions
Exclusion for assistance provided to participants in State student loan repayment programs for certain health professionals (retroactive to January 1, 2009)
Qualifying therapeutic discovery project credit (retroactive to January 1, 2009) – provision expires at end of 2010
Modification of section 833 treatment of certain health organizations (retroactive to January 1, 2010)
Make the adoption credit refundable; increase qualifying expenses threshold, and extend the adoption credit through 2011 (retroactive to January 1, 2010)
Small Business Tax CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. for certain small businesses (those meeting certain criteria) providing health insurance to employees (retroactive to January 1, 2010). In 2013, restricted only to insurance purchased through an exchange and only available for two conseutive years
Exclusion of unprocessed fuels from the cellulosic biofuel producer credit (retroactive to January 1, 2010)
Provisions going into effect on the date bill is signed into law
Additional requirements for section 501(c)(3) hospitals
Study and report of effect on veterans’ health care
Provide income exclusion for specified Indian tribe health benefits
Codify economic substance doctrine and impose penalties for underpayments
Provision specifying that subsidies or tax credits received through health care reform will not affect individual's qualifications for other federal programs
Tax ExemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. for Certain Member-Run Health Insurance Issuers
Tax Exemption for Entities Established Pursuant to Transitional Reinsurance Program for Individual Market in Each State
Rules pertaining to how the IRS is involved in income-verification and individual status for the purposes of participation in the exchanges and subsidies received
Other provisions going into effect before the end of 2010
July 1, 2010: Impose 10% excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. on indoor tanning services
Provisions going into effect in 2011
Employer W-2 reporting of value of health benefits
Conform the definition of medical expenses for health savings accounts, Archer MSAs, health flexible spending arrangements, and health reimbursement arrangements to the definition of the itemized deductionItemized deductions allow individuals to subtract designated expenses from their taxable income and can be claimed in lieu of the standard deduction. Itemized deductions include those for state and local taxes, charitable contributions, and mortgage interest. An estimated 13.7 percent of filers itemized in 2019, most being high-income taxpayers. for medical expenses (excluding over-the-counter medicines prescribed by a physician)
Increase in additional tax on distributions from HSAs and Archer MSAs not used for qualified medical expenses to 20%
Impose annual fee on manufacturers and importers of branded drugs ($2.5 billion for 2011, $2.8 billion per year for 2012 and 2013, $3.0 billion per year for 2014 through 2016, $4.0 billion for 2017, $4.1 billion for 2018, and $2.8 billion for 2019 and thereafter)
Provisions going into effect in 2012
Simple cafeteria plan nondiscrimination safe harbor for certain small employers
Require information reporting on payments to corporations (Note: this provision was repealed after this article was written.)
Provisions going into effect in 2013
$500,000 deduction limitation on taxable year remuneration to officers, employees, directors, and service providers of covered health insurance providers (goes into effect in 2013, but applies to compensation for services performed from January 1, 2010 forward)
Limit health flexible spending arrangements in cafeteria plans to $2,500; indexed to CPI-U after 2013
Impose 2.3% excise tax on manufacturers and importers of certain medical devices
Eliminate deduction for expenses allocable to Medicare Part D subsidy
Raise 7.5% AGI floor on medical expenses deduction to 10%; AGI floor for individuals age 65 and older (and their spouses) remains at 7.5% through 2016
Broaden Medicare Hospital Insurance Tax BaseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. for High-Income Taxpayers – additional HI tax of 0.9% on earned income in excess of $200,000/$250,000 (unindexed), and Unearned Income Medicare Contribution on 3.8% on investment income for taxpayers with AGI in excess of $200,000/$250,000 (unindexed)
Impose Fee on Insured and Self-Insured Health Plans; Patient-Centered Outcomes Research Trust Fund (expires after 2019)
Provisions going into effect in 2014
Increase by 15.75 percentage points the required corporate estimated tax payments factor for corporations with assets of at least $1 billion for payments due in July, August, and September 2014
Impose annual fee on health insurance providers ($8 billion in 2014, $11.3 billion in 2015 and 2016, $13.9 billion in 2017, $14.3 billion in 2018, and indexed to medical cost growth thereafter); based upon firm’s market share starting in 2013
Excise Tax (i.e., penalty) on Individuals Without Essential Health Benefits Coverage
Excise Tax (i.e., penalty) on Employers Not Providing Health Insurance Coverage to Employees (Shared Responsibility for Employers)
Refundable Tax CreditA refundable tax credit can be used to generate a federal tax refund larger than the amount of tax paid throughout the year. In other words, a refundable tax credit creates the possibility of a negative federal tax liability. An example of a refundable tax credit is the Earned Income Tax Credit (EITC). Providing Premium Assistance for Coverage Under a Qualified Health Plan
Requirement that employers report health insurance coverage
Provisions specifying cafeteria treatment of employers who purchase insurance through exchange
Provisions going into effect in 2018
40% excise tax on health coverage in excess of $10,200/$27,500 (subject to adjustment for unexpected increase in medical costs prior to effective date) and increased thresholds of $1,650/$3,450 for over age 55 retirees or certain high-risk professions, both indexed for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. by CPI-U plus 1%; adjustment based on age and gender profile of employees; vision and dental excluded from excise tax; levied at insurer level; employer aggregates and issues information return for insurers indicating amount subject to the excise tax; nondeductible
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