• ACA Repeal & Replacement Bill Passes in House

    15 May 2017
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    On May 4th, the House of Representatives passed the proposed American Health Care Act (AHCA). This would repeal and replace several arrangements of the Affordable Care Act (ACA).

    Exact details are not available, but, we have found some details from the original draft legislation published on March 6 to give you an idea of the how this will function (please keep in mind that some provisions were modified with respect to existing conditions in order to obtain enough Republican votes to pass the bill).

     

    GOP’s March Version of the AHCA

    The American Health Care Act would repeal and replace the Affordable Care Act (ACA). In general, the GOP’s plan would continue the ACA’s premium tax credit through 2019 and then replace it in 2020 with a new credit for individuals without government insurance and for those who are not offered insurance by their employer. However, most of the ACA’s insurance mandates and penalties would be repealed retroactive to 2015. Other provisions will be overturned periodically through 2019.

    • Repeal of the Individual Mandate

    Background: Under the ACA, individuals are generally required to have ACA- compliant health insurance or face a “shared responsibility payment” (a penalty for not being insured). For 2016, the annual penalty was $695 per uninsured individual ($347.50 per child), with a maximum penalty of $2,085 per family.

    AHCA Legislation: Under the new legislation, this penalty would be repealed after 2015.

    • Repeal of the Employer Mandate

    Background: Under the ACA, large employers, generally those with 50 or more equivalent full-time employees, were subject to penalties that could reach thousands of dollars per employee for not offering their full-time employees affordable health insurance. These employers were also subject to some very complicated reporting requirements.

    AHCA Legislation: Under the new legislation, this penalty would be repealed after 2015.

    • Recapture and Repeal of the Premium Tax Credit

    Background: The premium tax credit (PTC) is a health insurance subsidy for lower-income individuals, and it is based on their household income for the year. Since the household income can only be estimated at the beginning of the year, the insurance subsidy, known as the advance premium tax credit (APTC), must also be estimated at the beginning of the year. Then, when the tax return for the year is prepared, the difference between the estimated amount of the subsidy (APTC) and the actual subsidy allowed (PTC) is determined based on the actual household income for the year. If the subsidy paid was less than what the individual was entitled to, the excess is credited to the individual’s tax return. If the subsidy paid was more than what the individual was entitled to, the difference is repaid on the tax return. However, for lower-income taxpayers there is a cap on the amount that needs to repaid, and this is also based on household income.

    AHCA Legislation: For tax years 2018 and 2019, the GOP legislation would require the repayment of the entire difference regardless of income. In addition, the PTC would be repealed after 2019.

    • Catastrophic Insurance

    Background: The current law does not allow the PTC to be used for the purchase of catastrophic health insurance.

    AHCA Legislation: The new legislation would allow premium tax credits to be used for the purchase of qualified “catastrophic-only” health plans and certain qualified plans not offered through an Exchange.

    • Refundable Tax Credit for Health Insurance

    Beginning in 2020, as a replacement for the current ACA insurance subsidies (PTC), the AHCA legislation would create a universal refundable tax credit for the purchase of state-approved major medical health insurance and unsubsidized COBRA coverage. Generally eligible individuals are those who do not have access to government health insurance programs or an offer of insurance from any employer.

    The credit is determined monthly and ranges from $2,000 a year for those under age 30 to $4,000 for those over 60. The credit is additive for a family and capped at $14,000. The credit phases out for individuals who make more than $75,000 and for couples who file jointly and make more than $150,000.

    • Health Savings Accounts

    Background: Individuals covered by high-deductible health plans can generally make tax-deductible contributions to a health savings account (HSA). Currently (2017), the maximum that can be contributed is $3,400 for self-only coverage and $6,750 for family coverage. Distributions from an HSA to pay qualified medical expenses are tax-free. However, nonqualified distributions are taxable and generally subject to a 20% penalty.

    AHCA Legislation: Beginning in 2018, the HSA contribution limit would be increased to at least $6,550 for those with self-only coverage and to $13,100 for those with family coverage. In addition, the new legislation would do the following:

    • Allow both spouses to make catch-up contributions (applies to those age55 through 64) beginning in 2018.
    • Allow medical expenses to be reimbursed if they were incurred 60 days prior to the establishment of the HSA (whereas currently, expenses qualify only if they are incurred after the HSA is established).
    • Lower the penalty for nonqualified distributions from the current 20% to 10% (the amount of the penalty prior to 2011).
    • Medical Deduction Income Limitation

    Background: As part of the ACA, the income threshold for itemizing and deducting medical expenses was increased from 7.5% to 10% of the taxpayer’s AGI.

    AHCA Legislation: Under the new legislation, the threshold would be returned to 7.5% beginning in 2018 (2017 for taxpayers age 65 or older).

    • Repeal of Net Investment Income Tax

    Background: The ACA imposed a 3.8% surtax on net investment income for higher-income taxpayers, generally single individuals with incomes above $200,000 ($250,000 for married taxpayers filing jointly).

    AHCA Legislation: The new legislation would repeal this tax after 2017.

    • Repeal on FSA Contribution Limits

    Background: Flexible spending accounts (FSAs) generally allow employees to designate pre-tax funds that can be deposited in the employer’s FSA, which the employee can then use to pay for medical and other qualified expenses. Effective beginning in 2013, annual contributions to health FSAs (also referred to as cafeteria plans) were limited to an inflation-adjusted $2,500. For 2017, the inflation limitation is $2,550.

    AHCA Legislation: The new legislation would remove the health FSA contribution limit, effective starting in 2017.

    • Repeal of Increased Medicare Tax

    Background: Beginning in 2013, the ACA imposed an additional Medicare Hospital Insurance (HI) surtax of 0.9% on individuals with wage or self-employed income in excess of $200,000 ($250,000 for married couples filing jointly).

    AHCA Legislation: The new legislation would repeal this surtax beginning in 2018.

    • Other Provisions
    • Preexisting Conditions – Prohibits health insurers from denying coverage or charging more for preexisting conditions. However, to discourage people from waiting to buy health insurance until they are sick, the legislation as introduced would require individuals to maintain “continuous” coverage. Those who go uninsured for longer than a set period will be subject to 30% higher premiums as a penalty.

    Children Under Age 26 – Allows children under age 26 to remain on their parents’ health plan until they are 26.

    • Small Business Health Insurance Tax Credit– Repealed after 2019
    • Medical Device Tax– Repealed after 2017
    • Tanning Tax– Repealed after 2018
    • Over-the-Counter Medication Tax– Repealed after 2017

     

    Questions? Contact Dagley & Co.

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  • GOP Unveils Its Obamacare Repeal and Replacement Legislation

    15 March 2017
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    HOR

    Last week, on March 6th, the House Republicans unveiled their draft legislation that would repeal and replace the Affordable Care Act (ACA). This plan would ultimately continue the ACA’s premium tax credit through 2019 and then replace it in 2020. Then, a new credit for individuals without government insurance and those who are not offered insurance by their employer will be available.

    Additional details are provided below. Dagley & Co. wants you to keep in mind that the legislation is only a draft legislation and is subject to changes.

    Repeal of the Individual Mandate

    Background: Under the ACA, individuals are generally required to have ACA-compliant health insurance or face a “shared responsibility payment” (penalty for not being insured). For 2016, the annual penalty was $695 per uninsured individual ($347.50 per child), with a maximum penalty of $2,085 per family.

    GOP Legislation: Under the new legislation, this penalty would be repealed after 2015.

    Repeal of the Employer Mandate

    Background: Under the ACA, large employers, generally those with 50 or more equivalent full-time employees, were subject to penalties that could reach thousands of dollars per employee for not offering their full-time employees affordable health insurance. These employers were also subject to some very complicated reporting requirements.

    GOP Legislation: Under the new legislation, this penalty would be repealed after 2015.

    Recapture and Repeal of the Premium Tax Credit

    Background: The premium tax credit (PTC) is a health insurance subsidy for lower-income individuals, and it is based on their household income for the year. Since the household income can only be estimated at the beginning of the year, the insurance subsidy, known as the advance premium tax credit (APTC), must also be estimated at the beginning of the year. Then, when the tax return for the year is prepared, the difference between the estimated amount of the subsidy (APTC) and the actual subsidy allowed (PTC) is determined based on the actual household income for the year. If the subsidy paid was less than what the individual was entitled to, the excess is credited to the individual’s tax return. If the subsidy paid was more than what the individual was entitled to, the difference is repaid on the tax return. However, for lower-income taxpayers there is a cap on the amount that needs to repaid, and this is also based on household income.

    GOP Legislation: For tax years 2018 and 2019, the GOP legislation would require the repayment of the entire difference regardless of income. In addition, the PTC would be repealed after 2019.

    Catastrophic Insurance

    Background: The current law does not allow the PTC to be used for the purchase of catastrophic health insurance.

    GOP Legislation: The new legislation would allow premium tax credits to be used for the purchase of qualified “catastrophic-only” health plans and certain qualified plans not offered through an Exchange.

    Refundable Tax Credit for Health Insurance

    Beginning in 2020, as a replacement for the current ACA insurance subsidies (PTC), the GOP Legislation would create a universal refundable tax credit for the purchase of state-approved major medical health insurance and un-subsidized COBRA coverage. Generally eligible individuals are those who do not have access to government health insurance programs or an offer of insurance from any employer.

    The credit is determined monthly and ranges from $2,000 for those under age 30 to $4,000 for those over 60. The credit is additive for a family and capped at $14,000. The credit phases out for individuals who make more than $75,000 and for couples who file jointly and make more than $150,000.

    Health Savings Accounts

    Background: Individuals covered by high-deductible health plans can generally make tax-deductible contributions to a health savings account (HSA). Currently (2017), the maximum that can be contributed is $3,400 for self-only coverage and $6,750 for family coverage. Distributions from an HSA to pay qualified medical expenses are tax-free. However, non-qualified distributions are taxable and generally subject to a 20% penalty.

    GOP Legislation: Beginning in 2018, the HSA contribution limit would be increased to at least $6,550 for those with self-only coverage and to $13,100 for those with family coverage. In addition, the new legislation would do the following:

    • Allow both spouses to make catch-up contributions (applies to those age 55 through 64) beginning in 2018.
    • Allow medical expenses to be reimbursed if they were incurred 60 days prior to the establishment of the HSA (whereas currently only expenses incurred after the HSA is established qualify).
    • Lower the penalty for non-qualified distributions from the current 20% to 10% (the amount of the penalty prior to 2011).

    Medical Deduction Income Limitation

    Background: As part of the ACA, the income threshold for itemizing and deducting medical expenses was increased from 7.5% to 10% of the taxpayer’s AGI.

    GOP Legislation: Under the new legislation, the threshold would be returned to 7.5% beginning in 2018 (2017 for taxpayers age 65 or older).

    Repeal of Net Investment Income Tax

    Background: The ACA imposed a 3.8% surtax on net investment income for higher-income taxpayers, generally single individuals with incomes above $200,000 and $250,000 for married taxpayers filing jointly.

    GOP Legislation: The new legislation would repeal this tax after 2017.

    Repeal on FSA Contribution Limits

    Background: Flexible spending accounts (FSAs) generally allow employees to designate pre-tax funds that can be deposited in the employer’s FSA, which the employee can then use to pay for medical and other qualified expenses. Effective beginning in 2013, annual contributions to health FSAs (also referred to as cafeteria plans) were limited to an inflation-adjusted $2,500. For 2017, the inflation limitation is $2,550.

    GOP Legislation: The new legislation would remove the health FSA contribution limit, effective starting in 2017.

    Repeal of Increased Medicare Tax

    Background: Beginning in 2013, the ACA imposed an additional Medicare Hospital Insurance (HI) surtax of 0.9% on individuals with wage or self-employed income in excess of $200,000 or $250,000 for married couples filing jointly.

    GOP Legislation: The new legislation would repeal this surtax beginning in 2018.

    Other Provisions

    • Preexisting Conditions – Prohibits health insurers from denying coverage or charging more for preexisting conditions. However, to discourage people from waiting to buy health insurance until they are sick, individuals will need to maintain “continuous” coverage. Those who go uninsured for longer than a set period will be subject to 30% higher premiums as a penalty.
    • Children Under Age 26 – Allows children under age 26 to remain on their parents’ health plan until they are 26.
    • Small Business Health Insurance Tax Credit – Repealed after 2019
    • Medical Device Tax – Repealed after 2017
    • Tanning Tax – Repealed after 2018
    • Over-the-Counter Medication Tax – Repealed after 2017

    This is a proposed law change, and it may not ultimately turn out as described here. If you have any questions, please give Dagley & Co. a call.

     

     

     

     

     

     

     

     

     

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  • Ways To Deduct Health Insurance

    1 February 2016
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    In the wake of the “Affordable Care Act,” one of the largest and most substantially rising expenses are health insurance premiums. Although the cost of health insurance is allowed as part of an individual’s medical deductions when itemizing deductions, only the amount of total medical expenses that exceed 10% of the taxpayer’s adjusted gross income (AGI) is deductible. The 10% limitation is reduced to 7.5% through 2016 where a taxpayer or spouse (if any) is age 65 or over as of the end of the year. Prior to the increased limitation imposed by the “Affordable Care Act,” the limitation was 7.5% for everyone.

    The purpose of this article is twofold: first, to remind you what insurance can be included as a medical deduction, and second, to inform you of an alternate means of deducting health insurance for certain self-employed individuals—a means that avoids the AGI limitation and allows for deduction without itemizing.

    Let’s start by looking at what is treated as deductible health insurance. It includes the premiums you pay for coverage for yourself, your dependents, and your spouse, if applicable, for the following types of plans: Health Care and Hospitalization Insurance, Long-Term Care Insurance (but limited based upon age), Medicare-B, Medicare-C (aka Medicare Advantage Plans), Medicare-D, Dental Insurance, Vision Insurance, and Premiums Paid through a Government Marketplace net of the Premium Tax Credit.

    However, premiums paid on your or your family’s behalf by your employer aren’t deductible because their cost is not included in your wage income. Or, if you pay premiums for coverage under your employer’s insurance plan through a “cafeteria” plan, those premiums aren’t deductible either because they are paid with pre-tax dollars.

    If you are a self-employed individual, you can deduct 100% (no AGI reduction) of the premiums without itemizing your deductions. This above-the-line deduction is limited to your net profits from self-employment. If you are a partner who performs services in the capacity of a partner and the partnership pays health insurance premiums on your behalf, those premiums are treated as guaranteed payments that are deductible by the partnership and are includible in your gross income. In turn, you may deduct the cost of the premiums as an above-the-line deduction under the rules discussed in this article.

    No above-the-line deduction is permitted when the self-employed individual is eligible to participate in a “subsidized” health plan maintained by an employer of the taxpayer, the taxpayer’s spouse, any dependent, or any child of the taxpayer who hasn’t attained age 27 as of the end of the tax year. This rule is applied separately to plans that provide coverage for long-term care services. Thus, an individual eligible for employer-subsidized health insurance may still be able to deduct long-term care insurance premiums, as long as he isn’t eligible for employer-subsidized long-term care insurance. In addition, to be treated as subsidized, 50% or more of the premium must be paid by the employer.

    This above-the-line deduction is also available to more-than-2% S corporation shareholders. For purposes of the income limitation, the shareholder’s wages from the S corporation are treated as his or her earned income.

    If you have any questions related to deducting health insurance premiums, either as an itemized deduction or an above-the-line deduction for self-employed individuals, please give Dagley & Co. a call.

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  • Keep Your Health Insurance Records Up To Date!

    9 October 2015
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    If you purchase health insurance for yourself or your family through the federal or a state government health insurance marketplace and are receiving an advance premium tax credit (subsidy of premium available to those with low to moderate income) to help you pay the cost of that insurance, you should make sure you report changes in family income and family size – as they occur – to the marketplace through which you purchased your insurance.

    Changes in either family income or family size can have a significant impact on the amount of the advance premium tax credit (APTC) to which you are entitled. Reporting the changes as they occur allows the marketplace to adjust the APTC to the amount to which you are entitled.

    Here are some changes in circumstances that you should report to the marketplace:

    • An increase or decrease in your income
    • Marriage or divorce
    • The birth or adoption of a child
    • Starting a job that provides you with or access to health insurance
    • Gaining or losing your eligibility for other health care coverage
    • Changing your residence

    You can estimate (using the IRS estimator) the effect that changes in your family circumstances and income may have upon the amount of premium tax credit that you can claim.

    Reporting these changes to the marketplace will help you avoid getting too much or too little advance payment of the premium tax credit. Getting too much APTC means you may owe additional money or get a smaller refund when you file your taxes for this year. Getting too little APTC could mean missing out on premium assistance to reduce your monthly premiums.

    Repayments of excess premium assistance may be limited to an amount between $300 and $2,500, depending on your income and filing status. However, if advance payments of the premium tax credit were made, but your income for the year turns out to be too high to receive any amount of premium tax credit, you will have to repay all of the premium subsidies that were made on your behalf — with no limitation. Therefore, it is important that you report changes in circumstances that may have occurred since you signed up for your plan.

    You should also be aware that married individuals filing separate returns are generally not allowed a premium tax credit and that any advance credit will have to be fully repaid. There are exceptions for abused or abandoned spouses and for those who meet the requirements to file as head of household.

    If you have questions related to the APTC or how it may affect your particular circumstances, please get in touch with us at Dagley & Co. You’ll find our information at the bottom of this page.

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  • Tax Penalty For Not Having Health Insurance Jumps Up In 2015

    24 April 2015
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    Better get health insurance, folks.

    The penalty for not having minimum essential health insurance for yourself and other members of your tax family will jump substantially in 2015. For 2014, the penalty was the greater of the flat dollar amount ($95 for each adult plus $47.50 for each child under age 18, but no more than $285) or 1% of your household income minus your-tax filing threshold amount. For 2015, those amounts take a substantial jump to $325 for each adult and $162.50 for each child (but no more than $975) or 2% of household income minus the amount of your tax-filing threshold.

    Household income – Estimating the penalty requires you to project your household income for 2015. Household income includes the modified adjusted gross income (MAGI) for all members of your household for whom you claim a dependent exemption and who are required to file a tax return. As an example, say a parent has a teenage child who has a part-time job and earns $7,000 for the year. This $7,000 exceeds the child’s filing threshold (standard deduction for a single individual plus exemption allowance, but since the parents are claiming the child as a dependent, the child cannot claim his or her own exemption). So the child would be required to file a tax return, and the parents would be required to include the child’s MAGI when computing household income.

    Modified adjusted gross income – MAGI is your regular adjusted gross income with untaxed Social Security benefits, non-taxable interest and dividends, and the foreign earned income exclusion added back.

    Tax Filing Threshold – A taxpayer’s tax filing threshold is the sum of the standard deduction and personal exemptions for the filer and spouse.

    Figuring the penalty – Take for example a family of three, including Dad, Mom and their teenage child. The household income for the family is $65,000, including the child’s earnings of $7,000, and they are subject to the penalty for the entire year of 2015.

    • The flat dollar amount (per person) penalty is: $812.50 ($325 + $325 + $162.50)
    • The percentage of income amount is household income less their filing threshold times 2%. In this example the tax-filing threshold for 2015 would be $20,600, which is the total of $12,600 (standard deduction for married joint) plus $4,000 each for the filer and spouse (personal exemptions). Note that although the dependent child’s income is included in household income (because the child is required to file a return), the child’s standard deduction and exemption allowance are not included in the filing threshold amount used in the calculation of the penalty. The percentage of income amount is $888 (($65,000 – $20,600) x 2%)

    Thus, in this example, the annual penalty for not being insured for the entire year is $888, the greater of the flat dollar amount or the percentage of income. When a family is uninsured for less than a full year, the penalty would be applied on a monthly basis, which for the example would be $74 per month.

    If you have questions related to how the penalty might apply to your family, please get in touch with us at Dagley & Co.

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