Overview
The House Ways and Means Committee released draft budget reconciliation legislative recommendations as part of the legislative process intended to repeal and replace the Affordable Care Act (ACA). The reconciliation recommendations include a number of significant tax provisions.
Elimination of Individual and Employer Mandates
Under current law, penalties are imposed on certain individuals who do not purchase qualifying health insurance and on certain employers who do not provide health insurance to their employees. The legislation would set the amount of these penalties to zero, retroactively effective to months beginning after December 31, 2015. The Congressional Budget Office (CBO) has not yet scored these provisions.
Repeal of Net Investment Income Tax
Under current law, the net investment income tax (NIIT) imposes a 3.8% tax on certain net investment income of individuals, estates, and trusts that have income above the statutory threshold amounts. The legislation would repeal the NIIT for taxable years beginning after December 31, 2017. The Joint Committee on Taxation (JCT) estimates that repealing the NIIT will cost $157.6 billion over the 10-year budget window.
Repeal of Payroll Surtax
Under current law, a 0.9% surtax is imposed on wages and self-employment income above $200,000 ($250,000 for married couples). The legislation would repeal this surtax for taxable years beginning after December 31, 2017. The JCT estimates this will cost $117.3 billion over the 10-year budget window.
Replacing Premium Tax Credit With Refundable Tax Credit for Health Insurance
The legislation would eliminate the section 36B premium tax credit beginning in 2020. Under current law, the amount of the advanceable, refundable premium tax credit generally is determined by reference to the taxpayer’s household income and the premiums for silver-rated insurance plans available on the ACA exchange in the taxpayer’s area. The legislation would make certain other changes to the premium tax credit prior to its elimination, including expanding the scope of qualified health plans to include “catastrophic-only” plans and certain plans not offered through an ACA exchange.
The legislation would replace this premium tax credit with a new advanceable, refundable credit, generally determined by reference to the number and ages of individuals in the taxpayer’s household. The credit would be indexed to inflation plus one percent, and would begin to phase out for those with modified adjusted gross income higher than $75,000 ($150,000 for joint filers).
The CBO has not yet scored these provisions.
Repeal of Medical Device Tax
The ACA imposed a 2.3% excise tax on the sale of certain medical devices, although the Consolidated Appropriations Tax 2016 imposed a two-year moratorium on this tax through the end of 2017. The legislation would repeal this tax. The JCT estimates this would cost $19.6 billion over the 10-year budget window.
Additional Delay of Cadillac Tax
The ACA imposed a 40% excise tax on certain high-cost employer-sponsored health coverage (the “Cadillac tax”). Under current law, the Cadillac tax has been delayed until taxable periods beginning after December 31, 2019. Under the legislation, the Cadillac tax would be further delayed until taxable periods beginning after December 31, 2024. The JCT estimates this would cost $48.7 billion over the 10-year budget window.
Codification of Economic Substance Doctrine Retained
The ACA codified the economic substance doctrine in section 7701(o). Several prior bills intended to repeal and replace the ACA, including a leaked discussion draft of the latest House bill, would have repealed section 7701(o). However, the legislation does not include a repeal of section 7701(o), although such a repeal could be included in portions of the overall legislation not implemented through reconciliation.