Top 10 year-end tax planning tips

Another year is coming to a close, which only means a season of taxes is slowly approaching. Tax time can often be one of the most stressful times of the year for businesses, employees, and even clients, but that just means helping clients with a less stressful year-end planning session more crucial than ever. Read this blog post for helpful tips.


Between the upcoming presidential election and the COVID-19 pandemic and its attendant stimulus packages, this year has seen more than its share of uncertainty around tax — which makes helping clients with year-end planning all the more crucial.

“Year-end tax planning is more important than ever this year,” said Renato Zanichelli, national managing partner of tax services at Grant Thornton, in a statement. “Businesses both large and small have been dealt a tough hand. Having the right tax strategy will help businesses navigate this time of historic disruption and put them on the right track as a new year begins.”

“Lawmakers dedicated trillions of dollars to keep families and businesses afloat, but those provisions may also require quick action, in many cases by the end of this year,” added Dustin Stamper, managing director in the firm’s Washington National Tax Office. “The government wants to get money in the hands of those who need it, and many of the most generous provisions are tax changes that provide welcome liquidity for businesses and timely relief for individuals.”

With that in mind, the Top Eight Firm has put together a list of 10 key tax considerations for year-end planning for both individuals and businesses (below); for more see their year-end tax planning guides.

FOR INDIVIDUALS: 1. Use above-the-line charitable deduction
Everyone is entitled to a charitable deduction this year. The Tax Cuts and Jobs Act doubled the standard deduction while repealing or limiting many itemized deductions, leaving millions fewer taxpayers claiming actual itemized deductions. Typically, there is no tax benefit for giving to charity unless you itemize deductions. However, the CARES Act created an above-the-line deduction of up to $300 for cash contributions from taxpayers who don’t itemize. To take advantage of this provision, taxpayers should make sure to donate before the end of the year.
2. Understand the impact of that stimulus check
The CARES Act directed the IRS to issue stimulus checks of up to $1,200 per taxpayer and $500 per qualified child dependent earlier this year. The payments were paid based on 2018 or 2019 return information, but are actually structured as advances of 2020 tax credits. The credits phase out for higher-income taxpayers, so taxpayers want to understand the implications if the check they received based on 2018 or 2019 won’t match the amount of credit they will calculate on the 2020 return. If the 2020 credit calculation is less than they received, there is no clawback. If they received less than the credit calculated for 2020, they can claim it as an additional refund.
Opportunity zones are one of the most powerful incentives ever offered by Congress for investing in specific geographic areas. In certain scenarios, not only can an investor potentially defer paying tax on gains invested in an opportunity zone until as late as 2026, but they only recognize 90 percent of the gain if they hold the investment for five years. Additionally, if they hold the investment for 10 years and satisfy the rules, they pay no tax on the appreciation of the opportunity zone investment itself. If they’re worried about capital gains rates going up under a new administration, this may provide an excellent tax-free investment. There are more than 8,000 opportunity zones throughout the United States, and many types of investment, development and business activities can qualify.
4. Make up a tax shortfall with increased withholding
COVID-19 created cash-flow problems for many individuals. Taxpayers should make sure their withholding and estimated taxes align with what they actually expect to pay while they have time to fix a problem. If they find themselves in danger of being penalized for underpaying taxes, they can make up the shortfall through increased withholding on their salary or bonuses. A larger estimated tax payment at the end of the year can still expose them to penalties for underpayments in previous quarters, but withholding is considered to have been paid ratably throughout the year, so increasing it for year-end wages can save them in penalties.
5. Leverage low interest rates and generous exemptions before they’re gone
The historically low interest rates and lifetime gift and estate tax exemptions present a powerful estate-planning opportunity. Many estate and gift tax strategies hinge on the ability of assets to appreciate faster than the interest rates prescribed by the IRS. In addition, the economic fallout of COVID-19 is depressing many asset values. There’s a small window of opportunity to employ estate-planning techniques while interest rates are still low and the lifetime gift exemption is at an all-time high. The current gift and estate tax exemptions are set to expire in a few years, and a new administration in the White House could accelerate that timeline.
FOR BUSINESSES: 6. Accelerate AMT refunds
When the Tax Cuts and Jobs Act repealed the corporate Alternative Minimum Tax, it allowed corporations to claim all their unused AMT credits in the tax years beginning in 2018, 2019, 2020 and 2021. The CARES Act accelerates this timeline, allowing corporations to claim all remaining credits in either 2018 or 2019. This gives companies several different options to file for quick refunds. The fastest method for many companies will be filing a tentative refund claim on Form 1139, but corporations must file by Dec. 31, 2020, to claim an AMT credit this way.
7. Use current losses for quick refunds
The CARES Act resurrected a provision allowing businesses to use current losses against past income for immediate refunds. Net operating losses arising in tax years beginning in 2018, 2019 and 2020 can be carried back five years for refunds against prior taxes. These losses can even offset income at the higher tax rates in place before 2018. Companies should consider opportunities to accelerate deductions into a loss year to benefit from this rate arbitrage and obtain a larger refund.

Accounting method changes are among the most powerful ways to accelerate deductions, but remember any non-automatic changes a company wants to make effective for the 2020 calendar year must be made by the end of the year. C corporations make NOL refund claims themselves, but passthrough businesses like partnerships and S corporations pass losses onto to owners, who will make claims.

The fastest way to obtain a refund is generally by filing a tentative refund claim, but these must be filed by Dec. 31, 2020, for the 2019 calendar year. If losses will be in 2020, the business should start preparing to file early, because they cannot claim an NOL carryback refund until they file their tax return for the year.

8. Retroactive refund for bonus depreciation
The CARES Act fixed a technical problem with bonus depreciation, a generous provision that allows companies to immediately deduct the full cost of many types of business investments. The legislation expands bonus depreciation to apply to a generous category of qualified improvement property. QIP is commonly thought of as a retail and restaurant issue, but it is much broader and applies to almost any improvement to the interior of a building that is either owned or leased. The fix is retroactive, so businesses can fully deduct qualified improvements dating back to Jan. 1, 2018, which may offer relatively quick refunds. Taxpayers who filed 2018 and 2019 returns before the law changed can choose whether to reflect the additional retroactive deduction entirely in the 2020 year with an accounting method change, or amend both the 2018 and 2019 returns to apply bonus depreciation for QIP in each of those years.
9. Claim quick disaster loss refunds
A sign reminding people to social distance stands at Louis Armstrong Park in New Orleans, Louisiana.

Sophia Germer/Bloomberg

Tax rules allow businesses to claim certain losses attributable to a disaster on a prior-year tax return. This is meant to provide quicker refunds. President Donald Trump’s COVID-19 disaster declaration was unprecedented in scope, designating all 50 states, the District of Columbia and five territories as disaster areas. This means essentially every U.S. business is in the covered disaster area and may be eligible for refunds from certain types of losses. Under this provision, a business could claim a COVID-19 related disaster loss occurring in 2020 on a 2019 amended return for a quicker refund. The provision may potentially affect losses arising in a variety of circumstances, including the loss of inventory or supplies or the closure of offices, stores or plants. To qualify, the loss must actually be attributable to or caused by COVID-19 and satisfy several other requirements.

10. Consider the timing of payroll tax deduction
The CARES Act allows employers to defer paying their 6.2 percent share of Social Security taxes for the rest of 2020. Half of the deferred amount is due by Dec. 31, 2021, with the other half due by Dec. 31, 2022. This provides a great liquidity benefit, but taxpayers should consider the impact on deductions before the end of the year. Businesses generally cannot deduct their share of payroll taxes until paid. For most businesses, the value of deferring the actual payment is worth also deferring the deduction, but there may be some benefits for paying early to take the deduction in 2020, such as increasing an NOL for the rate arbitrage benefits discussed above. Some taxpayers using specific methods of accounting may also be able to pay the taxes as late as 8-½ months into 2021 and still claim the deduction for 2020.
BONUS: Re-evaluate the company’s tax function
Many tax departments at even the largest and most sophisticated companies still dedicate most of their time to basic number-crunching and repetitive processes. These kinds of inefficiencies make it hard to meet deadlines, present audit and tax risks, and cost businesses money — especially during unprecedented times like the COVID-19 pandemic where teams may be lean and struggling to keep up. Data analytics and automation can help mitigate these problems and enable a business’ tax function to focus more on strategic, value-added solutions — shifting away from a compliance-only role.
SOURCE: Employee Benefit Advisors. (08 October 2020) "Top 10 year-end tax planning tips" (Web Blog Post). Retrieved from http://employeebenefitadviser.com/list/top-10-year-end-tax-planning-tips


Saver's Credit Can Spur Retirement Plan Contributions

Many employees are not aware of employer-sponsored retirement accounts, or individual retirement accounts (IRA), which could be costing those more money. Tax season is the best time for employers to educate their employees on how they can earn extra tax credits through their 401(k) plans. Read this blog post to learn more about how to educate employees on what retirement account opportunities that are available to them.


Many workers don't know that they're eligible for a tax credit by saving in an employer-sponsored retirement plan or individual retirement account (IRA)—and that could be costing them money. Tax time, however, is prime time for employers to inform eligible workers about the saver's credit.

The Retirement Savings Contributions Credit, or saver's credit, is available to low- and moderate-income workers who are putting money aside for retirement. But only 29 percent of workers with annual household income below $50,000 know about the saver's credit, according to the nonprofit Transamerica Center for Retirement Studies in Los Angeles, which surveyed nearly 6,000 employees last fall.

"Tax season is an ideal time to tell eligible workers how they can earn extra tax credits by saving through their employer's 401(k) or a similar retirement plan," said Catherine Collinson, president of the Transamerica Center. "The saver's credit might just be the motivator for those not yet saving for retirement to get started."

Scott Spann, a senior financial planner with Financial Finesse, a provider of workplace financial wellness programs in Charleston, S.C., said, "Saving for retirement is a challenge for many households in America. Special tax incentives help make the process of saving easier."

What Is the Saver's Credit?

Like other tax credits, the saver's credit can increase a taxpayer's refund or reduce the tax owed. Here's how it works:

The amount of the credit is a maximum of 50 percent of an employee's retirement plan contributions up to $2,000 (or $4,000 for married couples filing jointly), depending on the filer's adjusted gross income as reported on Form 1040. Consequently, the maximum saver's credit is $1,000 (or $2,000 for married couples filing jointly).

The saver's credit "is different than a tax deduction due to the fact that a tax credit is a dollar-for-dollar reduction of your gross tax liability, which is the total amount of taxes you're responsible for paying before any credits are applied," Spann explained.

The saver's credit also differs from the separate tax benefit of contributing pretax dollars to a qualified retirement plan, such as an employer-sponsored 401(k) or an IRA. "Many eligible retirement savers may be confusing these two incentives because the notion of a double tax benefit"—pretax contributions and an additional tax credit—"seems too good to be true," Collinson said.

Who Can Claim the Saver's Credit?

The credit is available to workers age 18 or older who have contributed to a company-sponsored retirement plan or an IRA in the past year and meet the income requirements shown in the table below. The filer cannot be a full-time student nor claimed as a dependent on another person's tax return.

Income Caps for Tax Years 2019 and 2020

For eligible workers, the amount of the available tax credit diminishes as adjusted gross income (AGI) rises. To help preserve the credit's value, income thresholds are adjusted annually to keep pace with inflation. Below are the AGI caps for tax year 2019 (for tax returns filed this year) and 2020 (for returns filed next year).

2019 Saver's Credit
Tax Credit Rate Single Filers and Married, Filing Separately* Married, Filing Jointly Heads of Household
50% of contribution AGI not more than - $19,250 AGI not more than $38,500 AGI not more than $28,875
20% of contribution AGI of $19,251 - $20,750 AGI of $38,501 - $41,500 AGI of $28,876 - $31,125
10% of contribution AGI of $20,751- $32,000 AGI of $41,501 - $64,000 AGI of $31,126 - $48,000
No credit AGI more than $32,000 AGI more than $64,000 AGI more than $48,000

 

2020 Saver's Credit
Tax Credit Rate Single Filers and Married, Filing Separately* Married, Filing Jointly Heads of Household
50% of contribution AGI not more than $19,500 AGI not more than $39,000 AGI not more than $29,250
20% of contribution AGI of $19,501 - $21,250 AGI of $39,001 - $42,500 AGI of $29,251 - $31,875
10% of contribution AGI of $21,251 - $32,500 AGI of $42,501 - $65,000 AGI of $31,876 - $48,750
No credit AGI more than $32,500 AGI more than $65,000 AGI more than $48,750

Deadlines for Retirement Contributions

"You must make eligible contributions to your employer-sponsored retirement plan or IRA for the tax year for which you are claiming the income tax credit," Spann said.

While 401(k) contributions for a tax year can be made only up to Dec. 31, those who are eligible but did not save last year can still make a tax year 2019 IRA contribution until April 15, 2020.

Filing for the Saver's Credit

Employers can advise eligible workers to take the following steps to claim the saver's credit, according to the Transamerica Center:

  • If using tax-preparation software, including those programs offered through the IRS Free File program, use Form 1040 or Form 1040NR for nonresident aliens. Answer questions about the saver's credit, which may be referred to as the Retirement Savings Contributions Credit or the Credit for Qualified Retirement Savings Contributions.
  • If preparing tax returns manually, complete Form 8880, Credit for Qualified Retirement Savings Contributions, to determine your exact credit rate and amount. Then transfer the amount to the designated line on Form 1040 (Schedule 3) or Form 1040NR.
  • If using a professional tax preparer, ask about the saver's credit.

Financial planners advise having tax refunds directly deposited into an IRA to further boost your retirement savings.

The Transamerica Center has additional information, in English and Spanish, on its Saver's Credit webpage, along with a downloadable fact sheet.


IRS Free File Program Is Available

Another potentially overlooked opportunity for workers is the IRS Free File program, which offers federal income tax preparation software at no charge to tax filers with an AGI of $69,000 or less.

Free File opened on Jan. 10, 2020, for the preparation of 2019 tax returns. Eligible taxpayers can do their taxes now, and the Free File provider will submit the return once the IRS officially opens the tax filing season on Jan. 27.

For 2020, the Free File partners are: 1040Now, Inc., ezTaxReturn.com (English and Spanish), FileYourTaxes.com, Free tax Returns.com, H&R Block, Intuit, On-Line Taxes, Inc., Tax ACT, TaxHawk, Inc. and TaxSlayer (English and Spanish).

Here's how Free File works:

  1. Taxpayers go to IRS.gov/FreeFile to see all Free File options.
  2. They browse each of the offers or use a "look up" tool to help find the right product. Each Free File partner sets its own eligibility standards generally based on income, age and state residency. But if the taxpayer's adjusted gross income was $69,000 or less, they will find at least one free product to use.
  3. They select a provider and follow the links to their web page to begin a tax return.
  4. They complete and e-File a tax return if they have all the income and deduction records they need. The fastest way to get a refund is by filing electronically and selecting direct deposit. For taxes owed, they can use direct pay or electronic options.

Many Free File online products also offer free state tax preparation, although some charge a state fee. Taxpayers should read each provider's information carefully.

"The IRS has worked to improve the program for this year, and we encourage taxpayers to visit IRS.gov, and consider using the Free File option to get a head start on tax season," said IRS Commissioner Chuck Rettig.

Nearly 57 million returns have been filed through the Free File program since it began in 2003, and 70 percent of U.S. taxpayers (about 100 million people) are eligible for Free File, according to the IRS.


SOURCE: Miller, S. (10 January 2020) "Saver's Credit Can Spur Retirement Plan Contributions" (Web Blog Post). Retrieved from https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/remind-low-wage-earners-about-savers-credit.aspx


How 401(k) Taxes Work and How to Minimize the Tax Bill

Are you familiar with how 401(k) taxes work? Most 401(k) plans are tax-deferred, meaning that you won't pay income taxes until you withdraw the money you've put into your 401(k). Read this blog post for an overview of how these taxes work.


Most 401(k) plans are tax-deferred, which means you don’t pay income tax on the money you put into the account until you withdraw it. That makes the 401(k) not just a way to save for retirement; it’s also a great way to cut your tax bill. But there are a few rules about 401(k) taxes to know, as well as a few strategies that can get your tax bill even lower.

Here’s an overview of how 401(k) taxes work and how to pay less tax when the IRS asks for a cut of your retirement savings.

How do 401(k) taxes on contributions work?

Contributions to a traditional 401(k) plan come out of your paycheck before the IRS takes its cut. So if you earn $1,000 before taxes at work and you contribute $200 of it to your 401(k), that’s $200 less that you’ll be taxed on. When you file your tax return, you’d report $800 rather than $1,000.

  • If your employer offers a Roth 401(k), that means you contribute after-tax money instead of pre-tax money as with the traditional 401(k). This has a few advantages (see the section about withdrawals).
  • You still have to pay Medicare and Social Security taxes on your payroll contributions to a 401(k).
  • In 2019, you can contribute up to $19,000 a year to a 401(k) plan, which means you can shield $19,000 a year from income taxes. If you’re 50 or older, you can contribute $25,000 in 2019.
  • The annual contribution limit is per person, and it applies to all of your traditional or Roth 401(k) contributions in total.
  • Your employer will send you a W-2 in January that shows how much it paid you during the previous calendar year, as well as how much you contributed to your 401(k) and how much withholding tax you paid.

Do 401(k) taxes apply while your money is in the account?

While money is in a traditional 401(k), you pay no taxes on investment gains, interest or dividends.  This is true for a Roth 401(k), as well.

Roth 401(k) vs. Traditional 401(k)

Traditional 401(k) Roth 401(k)
Tax treatment of contributions Contributions are made pre-tax, which reduces your current adjusted gross income. Contributions are made after taxes, with no effect on current adjusted gross income. Employer matching dollars must go into a pre-tax account and are taxed when distributed.
Tax treatment of withdrawals Distributions in retirement are taxed as ordinary income. No taxes on qualified distributions in retirement.
Withdrawal rules Withdrawals of contributions and earnings are taxed. Distributions may be penalized if taken before age 59½, unless you meet one of the IRS exceptions. Withdrawals of contributions and earnings are not taxed as long as the distribution is considered qualified by the IRS: The account has been held for five years or more and the distribution is:

  • Due to disability or death
  • On or after age 59½

Unlike a Roth IRA, you cannot withdraw contributions at any time.

How do 401(k) taxes apply to withdrawals?

In technical terms, your contributions and the investment growth in a traditional 401(k) are tax-deferred — that is, you don’t pay taxes on the money until you make withdrawals from the account. At that point, you’ll owe income taxes to Uncle Sam. If you’re in a Roth 401(k), in most cases you won’t owe any taxes at all when you withdraw the money because you will have already paid the taxes upfront.

401(k) taxes if you withdraw the money in retirement

  • For traditional 401(k)s, the money you withdraw is taxable as regular income — like income from a job — in the year you take the distribution (remember, you didn’t pay income taxes on it back when you put it in the account; now it’s time to pay the piper).
  • For Roth 401(k)s, the money you withdraw is not taxable (you already paid the income taxes on it back when you put the money in the account).
  • You can begin withdrawing money from your traditional 401(k) without penalty when you turn age 59½.
  • You can begin withdrawing money from your Roth 401(k) without penalty once you’ve held the account for at least five years and you’re at least 59½.
  • If you’ve retired, you have to start taking required minimum distributions from your account starting on April 1 of the year following the year in which you turn 70½.
  • If you’re still working at age 70½, you can put off taking distributions from your traditional 401(k).
  • If you don’t take the required minimum distribution when you’re supposed to, the IRS can assess a penalty of 50% of the amount not distributed.
  • You can withdraw more than the minimum.

401(k) taxes if you withdraw the money early

For traditional 401(k)s, there are three big consequences of an early withdrawal or cashing out before age 59½:

  1. Taxes will be withheld. The IRS generally requires automatic withholding of 20% of a 401(k) early withdrawal for taxes. So if you withdraw the $10,000 in your 401(k) at age 40, you may get only about $8,000.
  2. The IRS will penalize you. If you withdraw money from your 401(k) before you’re 59½, the IRS usually assesses a 10% penalty when you file your tax return. That could mean giving the government another $1,000 of that $10,000 withdrawal.
  3. You may have less money for later, especially if the market is down when you start making withdrawals. That could have long-term consequences.

There are a lot of exceptions. This article has more details, but in a nutshell, you might be able to escape the IRS’s 10% penalty for early withdrawals from a traditional 401(k) if you:

  • Receive the payout over time.
  • Qualify for a hardship distribution with the plan administrator.
  • Leave your job and are over a certain age.
  • Are getting divorced.
  • Are or become disabled.
  • Put the money in another retirement account.
  • Use the money to pay an IRS levy.
  • Use the money to pay certain medical expenses.
  • Were a disaster victim.
  • Overcontributed to your 401(k).
  • Were in the military.
  • Die.

You can withdraw money from a Roth 401(k) early if you’ve held the account for at least five years and need the money due to disability or death.

7 quick tips to minimize 401(k) taxes

  1. Wait as long as you can to take money out of your account. Withdrawals are what can trigger taxes.
  2. If you must make an early withdrawal from a 401(k), see if you qualify for an exception that will help you avoid paying an early withdrawal penalty.
  3. See if you qualify for the Saver’s Credit on your contributions.
  4. Be careful with how you roll over your account. Rolling an old 401(k) account into another 401(k) or into an IRA usually won’t trigger taxes — if you get the money into the new account within 60 days. Otherwise, the IRS might consider the move a distribution, triggering taxes and maybe even a penalty.
  5. Borrow from your 401(k) instead of making an early withdrawal. Not all 401(k) plans offer loans, though. Also, in most circumstances you’ll need to repay the loan within five years and make regular payments. Check with your plan administrator for the rules.
  6. Use tax-loss harvesting. You might be able to offset the taxes on your 401(k) withdrawal by selling underperforming securities at a loss in some other regular investment account you might have. Those losses can offset some or all of the taxes on your 401(k) withdrawal.
  7. See a tax professional. There are other ways to minimize your 401(k) taxes, too, so find a qualified tax pro and discuss your options.

SOURCE: Orem, T. (19 September 2019) "How 401(k) Taxes Work and How to Minimize the Tax Bill" (Web Blog Post). Retrieved from https://www.nerdwallet.com/blog/taxes/401k-taxes/


Cadillac Tax May Finally Be Running Out of Gas

The Cadillac tax - a 40 percent tax on the most generous employer-provided health insurance plans - may be about to change. The Cadillac tax was supposed to take effect in 2018 but has been delayed twice and recently, the House voted to repeal this tax entirely. Read this blog post to learn more about this potential change.


The politics of healthcare are changing. And one of the most controversial parts of the Affordable Care Act — the so-called Cadillac tax — may be about to change with it.

The Cadillac tax is a 40% tax on the most generous employer-provided health insurance plans — those that cost more than $11,200 for an individual policy or $30,150 for family coverage. It was supposed to take effect in 2018, but Congress has delayed it twice. And the House recently voted overwhelmingly — 419-6 — to repeal it entirely. A Senate companion bill has 61 co-sponsors — more than enough to ensure passage.

The tax was always an unpopular and controversial part of the 2010 health law because the expectation was that employers would cut benefits to avoid paying the tax. But ACA backers said it was necessary to help pay for the law’s nearly $1 trillion cost and help stem the use of what was seen as potentially unnecessary care. In the ensuing years, however, public opinion has shifted decisively, as premiums and out-of-pocket costs have soared. Now the biggest health issue is not how much the nation is spending on healthcare, but how much individuals are.

“Voters deeply care about healthcare still,” said Heather Meade, a spokeswoman for the Alliance to Fight the 40, a coalition of business, labor and patient advocacy groups urging repeal of the Cadillac tax. “But it is about their own personal cost and their ability to afford healthcare.”

Stan Dorn, a senior fellow at Families USA, recently wrote in the journal Health Affairs that the backers of the ACA thought the tax was necessary to sell the law to people concerned about its price tag and to cut back on overly generous benefits that could drive up health costs. But transitions in healthcare, such as the increasing use of high-deductible plans, make that argument less compelling, he said.

“Nowadays, few observers would argue that [employer-sponsored insurance] gives most workers and their families’ excessive coverage,” he wrote.

The possibility of the tax has been “casting a statutory shadow over 180 million Americans’ health plans, which we know, from HR administrators and employee reps in real life, has added pressure to shift coverage into higher-deductible plans, which falls on the backs of working Americans,” said Rep. Joe Courtney (D-Conn.).

Support or opposition to the Cadillac tax has never broken down cleanly along party lines. For example, economists from across the ideological spectrum supported its inclusion in the ACA, and many continue to endorse it.

“If people have insurance that pays for too much, they don’t have enough skin in the game. They may be too quick to seek professional medical care. They may too easily accede when physicians recommend superfluous tests and treatments,” wrote N. Gregory Mankiw, an economics adviser in the George W. Bush administration, and Lawrence Summers, an economic aide to President Barack Obama, in a 2015 column. “Such behavior can drive national health spending beyond what is necessary and desirable.”

At the same time, however, the tax has been bitterly opposed by organized labor, a key constituency for Democrats. “Many unions have been unable to bargain for higher wages, but they have been taking more generous health benefits instead for years,” said Robert Blendon, a professor at the Harvard T.H. Chan School of Public Health who studies health and public opinion.

Now, unions say, those benefits are disappearing, with premiums, deductibles and other cost sharing rising as employers scramble to stay under the threshold for the impending tax. “Employers are using the tax as justification to shift more costs to employees, raising costs for workers and their families,” said a letter to members of Congress from the Service Employees International Union.

Deductibles have been rising for a number of reasons, the possibility of the tax among them. According to a 2018 survey by the federal government’s National Center for Health Statistics, nearly half of Americans under age 65 (47%) had high-deductible health plans. Those are plans that have deductibles of at least $1,350 for individual coverage or $2,700 for family coverage.

It’s not yet clear if the Senate will take up the House-passed bill, or one like it.

The senators leading the charge in that chamber — Mike Rounds (R-S.D.) and Martin Heinrich (D-N.M.) — have already written to Senate Majority Leader Mitch McConnell to urge him to bring the bill to the floor following the House’s overwhelming vote.

“At a time when healthcare expenses continue to go up, and Congress remains divided on many issues, the repeal of the Cadillac tax is something that has true bipartisan support,” the letter said.

Still, there is opposition. A letter to the Senate on July 29 from economists and other health experts argued that the tax “will help curtail the growth of private health insurance premiums by encouraging employers to limit the costs of plans to the tax-free amount.” The letter also pointed out that repealing the tax “would add directly to the federal budget deficit, an estimated $197 billion over the next decade, according to the Joint Committee on Taxation.”

Still, if McConnell does bring the bill up, there is little doubt it would pass, despite support for the tax from economists and budget watchdogs.

“When employers and employees agree in lockstep that they hate it, there are not enough economists out there to outvote them,” said former Senate GOP aide Rodney Whitlock, now a healthcare consultant.

Harvard professor Blendon agrees. “Voters are saying, ‘We want you to lower our health costs,’” he said. The Cadillac tax, at least for those affected by it, would do the opposite.

SOURCE: Rovner, J. ( 19 August, 2019) "Cadillac tax may finally be running out of gas" (Web Blog Post). Retrieved from https://www.employeebenefitadviser.com/articles/obamacare-excise-tax-may-be-at-an-end


7 ways to reduce stress this tax season

Does tax season leave you stressed out? Tax season is here, leaving many employers face-to-face with a number of demands. Continue reading this post from Employee Benefit News for seven ways employers can reduce stress during tax season.


Tax filing season is here, which means many employers will come face-to-face with a number of demands. Whether they do their own taxes, use online tax software or meet with a trusted tax adviser, there are many useful resources out there that will help employers work smarter, not harder.

Here are seven ways employers can reduce stress during tax season.

2019 U.S. Master Tax Guide

The U.S. Master Tax Guide contains timely and precise explanations of federal income taxes for individuals, partnerships and businesses. This guide contains information including tax tables, tax rates, checklists, special tax tables and explanatory text.

Legislative resources

Find a trusted, reputable resource for the latest news, opinions and laws regarding healthcare. Many companies in the industry have a designated section on their website that is dedicated to providing employers with updates and trends in the health insurance industry and how it will affect taxes.
Content Continues Below

Payroll calculators

Employers can use payroll calculators to determine gross pay, withholdings, deductions, net pay after Social Security and Medicare and more. Calculator types include salary payroll calculators, hourly paycheck calculators, gross pay calculators, W-4 assistants, percentage bonus calculators and aggregate bonus calculators.

Keep, shred, toss

Now is the perfect time to organize tax records so that they’re easy to find in case they’re needed to apply for a loan, answer IRS questions or file an amended return.

The IRS has some helpful guidance you can share with your clients on what records to keep and for how long. They should remember to:

  • Keep copies of tax returns and supporting documents for at least three years.
  • Keep some documents for up to seven years.
  • Keep healthcare information statements for at least three years. These include records of employer-provided coverage, premiums paid, advance payments of the premium tax credit received and type of coverage.

Make sure records are kept safe — but when it’s time, shred or destroy

Whether they consist of paper stacked in a shoebox, electronic files stored on a device or in the cloud, it’s important to safeguard all personal records, especially anything that lists Social Security numbers. Consumer Affairs recommends scanning paper and keeping records stored securely on a flash drive, CD or DVD.

It’s more important than ever for employers to keep personal information out of the hands of identity thieves. That means not tossing records in the trash or recycling bin. Home paper shredders are often inadequate for large piles of paper, but many communities have professional, secure document shredding services.
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Start as early as possible

A deadline looming always makes the situation more stressful. It’s very important for employers to not wait until the last minute to start their tax return. If they choose to use a tax professional, be sure that they get in early. Tax professionals take on many clients, and only have a short timeframe to get all the work done.

Be honest

It may be tempting for employers to tell a white lie on their taxes to maximize their tax breaks or return, but that comes at a great risk. If they are audited by the IRS, they will liable for whatever was reported.

SOURCE: Waletzki, T. (12 March 2019) "7 ways to reduce stress this tax season" (Web Blog Post). Retrieved from https://www.benefitnews.com/list/how-to-reduce-stress-this-tax-season?brief=00000152-14a5-d1cc-a5fa-7cff48fe0001


4 FAQs about W-2 business email compromise attacks during tax season

Has your business been a victim of tax season cyber attacks? The most popular time of the year for W-2 related cyber attacks is during tax season. Read this blog post to learn more.


The most likely cyber attack a company will face will come in the form of an email. One of the most common forms of email attack is the business email compromise (BEC), and the most popular time of the year for the W-2 version of BEC is right now — tax season.

A BEC attack involves attackers sending emails disguised as coming from high-level executives within a company, such as the CEO, to lower level personnel. During tax season, the spoof email will often request that W-2s for employees be provided by return email.

While the email looks identical to the executive’s email, it is coming from — and then returned to — the criminal, not the executive, along with the W-2s and the personal information associated with the documents.

If an employee falls for the scam, the company now has experienced a serious data breach and must comply with certain legal requirements. Worse yet, the company’s employees’ sensitive personal information has been given to the attackers and they have this problem to worry about instead of performing their job. The disruption is substantial in their personal lives and for the company’s operations.

How do attackers use W-2 information?

In most cases, once the attackers have that W-2 information, they use it to attempt to file fraudulent tax returns for those employees and have their tax refunds sent to them instead of the employee. They also use it for traditional identity theft.

The attackers act very quickly once the information is obtained. In some cases, they have begun to fraudulently use the information on the same day they obtained the W-2 information from the company. Time is truly of the essence in responding to these attacks and legal assistance is necessary for properly responding to these data breach events.

Why do so many attacks happen during tax season?

Law enforcement officers and cybersecurity professionals report a drastic increase in these types of attacks during the beginning of each year because of tax season. This is consistent with what is seen in helping companies with these cases in past years, as well. The reason this type of attack is so common during tax season is because of the tax-related fraud aspect of this type of attack. That is, the attackers monetize their attacks by using the fraudulently obtained information to file fraudulent tax returns and obtain refunds from innocent victims.

And the sooner they can do this, the better their chances are of getting the refund before the taxpayer files and receives their tax refund.

If a company has not yet been targeted, it is likely that it will be very soon so it is important to be prepared.

What can you do to protect your company?

Educating employees is critical because they will be the ones who receive the emails from the attackers.

  • Make them aware of this issue by sharing the information in this article with them so that they understand the threat, how it works and how it could affect them personally.
  • Train them by having appropriate personnel discuss this threat with them and help them understand that they should be very suspicious of any requests to email out anything of this nature (or make payments, such as with the very similar wire transfer version of the BEC).

Have appropriate internal controls in place to protect against these types of attacks. These controls can include:

  • Limit who has access to your company’s W-2s and other sensitive information as well as who has the authority to submit or approve wire payments.
  • Have established procedures in place for sending W-2 information or other sensitive information as well as for submitting or approving wire payments so that dual approvals are required for these activities.
  • Require employees to use an alternative means of confirming the identity of the person making the request. If the request is by email, the employee should talk to the requestor in-person or call and speak to the requestor using a known telephone number to get verbal confirmation. If the request is by telephone or fax (many times they are), then use email to confirm by using an email address known to be correct to confirm with the purported requestor. Never reply to one of these emails or call using a telephone number that is provided in one of these emails, faxes, or telephone calls.

What to do if your company is hit by an attack

  • Immediately contact experienced legal counsel who understands how to guide a company through these incidents and, ideally, has appropriate contacts with law enforcement and the IRS to assist in reporting this incident quickly.
  • Report the incident to the FBI or Secret Service and appropriate IRS investigators so that the IRS can implement appropriate procedures to protect the employees whose information was exposed in the W-2s.
  • Prepare appropriate notifications to the people whose information was exposed and comply with all legal and regulatory reporting requirements. This should be a part of an existing incident response plan. Companies should have such a procedure in place to be better prepared if and when a security breach occurs.
  • Inform employees that the IRS will never contact them directly, for the first time, via email, telephone, text message, social media or any way other than through a written “snail mail” letter.

SOURCE: Tuma, S. (19 February 2019) "4 FAQs about W-2 business email compromise attacks during tax season" (Web Blog Post). Retrieved from https://www.benefitspro.com/2019/02/19/4-faqs-about-w-2-business-email-compromise-attacks-during-tax-season/


The American Health Care Act: Economic and Employment Consequences for States

Could health insurance reductions under the American Health Care Act (AHCA) cause problems for employment in the future? Check out this article from The Commonwealth Fund to learn more.

Abstract

Issue: The American Health Care Act (AHCA), passed by the U.S. House of Representatives, would repeal and replace the Affordable Care Act. The Congressional Budget Office indicates that the AHCA could increase the number of uninsured by 23 million by 2026.
Goal: To determine the consequences of the AHCA on employment and economic activity in every state.
Methods: We compute changes in federal spending and revenue from 2018 to 2026 for each state and use the PI+ model to project the effects on states’ employment and economies.
Findings and Conclusions: The AHCA would raise employment and economic activity at first, but lower them in the long run. It initially raises the federal deficit when taxes are repealed, leading to 864,000 more jobs in 2018. In later years, reductions in support for health insurance cause negative economic effects. By 2026, 924,000 jobs would be lost, gross state products would be $93 billion lower, and business output would be $148 billion less. About three-quarters of jobs lost (725,000) would be in the health care sector. States which expanded Medicaid would experience faster and deeper economic losses.

Background

On May 24, 2017, the U.S. House of Representatives passed the American Health Care Act (AHCA, H.R. 1628) to partially repeal and replace the Affordable Care Act (ACA), also known as Obamacare. The U.S. Senate is currently developing its own version of the legislation.

A January 2017 analysis found that repealing certain elements of the ACA—the Medicaid expansion and premium tax credits—could lead to 2.6 million jobs lost and lower gross state products of $1.5 trillion over five years.1,2 That brief focused only on specific repeal elements because other details were not available. This brief examines all aspects of the AHCA, including restructuring Medicaid and health tax credits and repealing ACA taxes (Exhibit 1).

Exhibit 1
Key Provisions of the American Health Care Act as Passed by the U.S. House of Representatives
Eliminates individual penalties for not having health insurance and penalties for employers that do not offer adequate coverage to employees. Raises premiums for people who do not maintain continuous insurance coverage.
Replaces the current income-related premium tax credits to subsidize nongroup health insurance with age-based tax credits. Allows premiums to be five times higher for the oldest individuals, compared to the current threefold maximum.
Restricts state Medicaid eligibility expansions for adults, primarily by reducing federal matching rates from 90 percent beginning in 2020 to rates ranging between 50 percent and 75 percent.
Creates temporary funding for safety-net health services in states that did not expand Medicaid.
Restructures Medicaid funding based on per capita allotments rather than the current entitlement. States may adopt fixed block grants instead.
Creates a Patient and State Stability Fund and Invisible Risk-Sharing Program.
Terminates the Prevention and Public Health Fund.
Repeals numerous taxes included in the ACA, including Medicare taxes on investment income and on high-income earnings, taxes on health insurance and medical devices, and a tax on high-cost insurance (i.e., the “Cadillac tax”); raises limits for health savings accounts and lowers the threshold for medical care deductions.
Allows states to waive key insurance rules, like community rating of health insurance and essential health benefits. Creates a fund that states could use to lower costs for those adversely affected by the waiver.

The Congressional Budget Office (CBO) reported the AHCA would increase the number of uninsured Americans under age 65 by 14 million in fiscal year 2018, eventually reaching 23 million more by 2026.3 A RAND analysis of an earlier version of the bill was similar: 14 million more uninsured in 2020 and 20 million in 2026.4

This report examines the potential economic effects of the AHCA from calendar years 2018 to 2026, including:

    • employment levels, measured as changes in the number of jobs created or lost due to policy changes
    • state economic growth, as measured by changes in gross state products in current dollars, adjusted for inflation; an aggregate measure of state economies, analogous to the gross domestic product at the national level

state business output,

    as measured by changes in business receipts in current dollars at production, wholesale, and retail levels, encompassing multiple levels of business activity.

Our estimates are based on changes in federal funding gained or lost to states, consumers, and businesses. The AHCA significantly reduces federal funding for Medicaid. It lowers federal match funding for the 31 states and District of Columbia that expanded Medicaid, encouraging them to discontinue their expansions. It gives states an option to either adopt per capita allotments for Medicaid or fixed block grants; either option lowers federal Medicaid expenditures. Eliminating the tax penalty for individuals without health insurance reduces incentives to purchase insurance, raising the number of uninsured people. Restructuring premium tax credits and widening age-related differences in premiums are expected to shrink nongroup insurance coverage and reduce federal spending for health insurance subsidies. The AHCA is designed so that tax cuts take effect sooner than reductions in health insurance subsidies. Thus, state employment and economies could grow at first but shrink in later years as the coverage reductions deepen.

How Federal Health Funding Stimulates Job Creation and State Economies

Federal health funds are used to purchase health care. Then, fiscal effects ripple out through the rest of the economy, creating employment and other economic growth. This phenomenon is called the multiplier effect. Health funds directly pay hospitals, doctors’ offices, and other providers; this is the direct effect of federal funding. These facilities use revenue to pay their employees and buy goods and services, such as rent or equipment; this is the indirect effect of the initial spending. In addition, there are induced effects that occur as health care employees or other businesses (and eventually their workers) use their income to purchase consumer goods like housing, transportation, or food, producing sales for a diverse range of businesses. Similarly, when federal taxes are reduced, consumers or businesses retain income and can purchase goods and services, invest, or save. Due to interstate commerce, each type of effect can flow across state lines.

Both government spending increases and tax reductions can stimulate job creation and economic growth. The relative effects depend on how the funds are used. Government spending or transfers, like health insurance subsidies, typically have stronger multiplier effects in stimulating consumption and economic growth than do tax cuts. Tax cuts usually aid people with high incomes who shift much of their gains into savings, stimulating less economic activity.5,6,7 A recent analysis found that 90 percent of the AHCA’s tax cuts go to the top one-fifth of the population by income.8

This report estimates how the AHCA will change federal funds gained or lost for all 50 states and the District of Columbia from 2018 to 2026. We allocate federal funding changes, based on CBO estimates, for each state. We then analyze how federal funding changes ripple through state economies, using the PI+ economic model, developed by Regional Economic Models, Inc. (REMI).9 (See Appendix B. Study Methods.)

Findings

Overall Effects

As illustrated in Exhibit 2, most of the AHCA’s tax repeals begin almost at once, while coverage-related spending reductions phase in. The net effect initially raises the federal deficit. In 2018, the number of jobs would rise by 864,000 and state economies would grow. Health sector employment begins to fall immediately in 2018, with a loss of 24,000 jobs, and continues dropping to 725,000 health jobs lost by 2026 (Exhibit 3). Most other employment sectors gain initially, but then drop off and experience losses.

By 2020, the reduction in federal funding for coverage would roughly equal the total level of tax cuts. By the following year, 2021, coverage reductions outpace tax cuts. As a result, there are 205,000 fewer jobs than without the AHCA and state economies begin to shrink.

By 2026, 924,000 fewer people would have jobs. Gross state products would drop by $93 billion and business output would be $148 billion lower. These downward trends would continue after 2026.

Looking at Coverage-Related and Tax Repeal Policies

To better understand how the AHCA affects state economies and employment, Exhibit 4 looks at the two major components of the AHCA separately. The coverage-related policies (Title I of the AHCA and sections related to premium tax credits and individual and employer mandates) generally lower federal spending, particularly due to cuts to Medicaid and premium tax credits. Some policies partially offset those large cuts, such as the Patient and State Stability Fund. The tax repeal policies (Title II, except for sections about premium tax credits and individual and employer mandates), such as repeal of Medicare-related taxes, Cadillac tax, or medical device tax, predominantly help people with high incomes or selected businesses.

Implemented alone, the coverage-related policies would lead to steep job losses over time, reaching 1.9 million by 2026, driven by deep Medicaid cuts (Exhibit 4). Job losses begin to mount in 2019.

Alternatively, the tax repeal policies on their own would be associated with higher employment and state economic growth. Gains begin with 837,000 more jobs in 2018; this rises through 2024, and leads to 1 million additional jobs in 2026. Combined, tax repeal and coverage-related changes lead to initial economic and employment growth but eventual losses.

The detailed employment results show how these two components of the AHCA affect different economic sectors. Coverage and spending-related policies are directly related to funding for health services (e.g., Medicaid, premium tax credits, high-risk pools). The reductions directly affect the health sector—hospitals, doctors’ offices, or pharmacies—but then flow out to other sectors. Thus, about two-fifths of jobs lost due to coverage policies are in the health sector while three-fifths are in other sectors. Tax changes affect consumption broadly, spreading effects over most job sectors.

Within the health sector, job losses due to coverage-related cuts are much greater than gains due to tax repeal; losses in health care jobs begin immediately. In other sectors, employment grows at the beginning but later declines.

State-Level Effects

Consequences differ from state to state. We summarize data for nine states: Alaska, Florida, Kentucky, Maine, Michigan, New York, Ohio, Pennsylvania, and West Virginia. Exhibit 5 shows the effects of the AHCA in 2018 and in 2026. Complete results for all 50 states and the District of Columbia are available in Appendices A1–A4. In this analysis, states that expanded Medicaid tend to experience deeper and faster economic declines, although substantial losses occur even among nonexpansion states:

  • Eight of the nine states (Alaska, Florida, Kentucky, Maine, New York, Ohio, Pennsylvania, and West Virginia) begin with positive economic and employment effects in 2018, but are worse off by 2026, with outcomes typically turning negative well before 2026.
  • Michigan is worse off in 2018 and continues to decline through 2026. We assume Michigan will terminate its Medicaid expansion immediately because of a state law that automatically cancels the expansion if the federal matching rate changes.10 Six other states (Arkansas, Illinois, Indiana, New Hampshire, New Mexico, and Washington) have similar legislation and experience losses sooner than other states.
  • Most job losses are in health care. In six states (Florida, Kentucky, Maine, Michigan, Ohio, and West Virginia) health care job losses begin in 2018, but all nine states have significant reductions in health employment by 2026. Looking at the U.S. overall, in most states, losses in health care jobs begin by 2020 (Appendix A2).
  • States that expanded Medicaid have deeper and faster losses. Having earned more federal funds, they lose more when Medicaid matching rates fall. While cutting funds to states that expanded health insurance for low-income Medicaid populations, the bill temporarily increases funding to states that did not expand Medicaid. Nonetheless, states that did not expand Medicaid, like Florida and Maine, experience job and economic losses after a few years. In fact, Florida has the third-highest level of job loss in the nation by 2026.
  • Other factors that can affect the size of economic and employment effects include:
    • the extent to which states gained coverage in the ACA health insurance marketplaces; states with higher marketplace enrollment tend to lose more
    • the cost of health insurance in the state; the new tax credits are the same regardless of location, making insurance less affordable in high-cost states and reducing participation
    • age structure; older people will find insurance less affordable
    • state population size; the population size of states magnifies their losses or gains
    • other factors that affect tax distribution, like number of residents with investment income or high incomes or whether medical device or pharmaceutical manufacturers are located in the state.

Overall, the 10 states with the largest job losses by 2026 are: New York (86,000), Pennsylvania (85,000), Florida (83,000), Michigan (51,000), Illinois (46,000), New Jersey (42,000), Ohio (42,000), North Carolina (41,000), California (32,000), and Tennessee (28,000). Forty-seven states have job losses by 2026; four states (Colorado, Hawaii, Utah, and Washington) have small job gains in 2026, but would likely incur losses in another year or two (Appendix A1).

Conclusions

The House bill to repeal and replace the Affordable Care Act would greatly reduce the number of people with insurance coverage, effectively reversing gains made since the law’s enactment. The AHCA would initially create more employment and economic growth, driven by a federal deficit increase in 2018 and 2019, but the effects turn negative as coverage reductions deepen, with job losses and lower economic growth beginning in 2021. By 2026, 924,000 jobs would be lost, gross state products would be $93 billion lower, and business output could fall by $148 billion.

Health care has been one of the main areas of job growth in recent years.11 Under the AHCA, the sector would lose jobs immediately, with a loss of 24,000 jobs in 2018. By 2026, 725,000 fewer health sector jobs would exist. This would be a major reversal from current trends. While our analysis shows other employment sectors grow initially, most other sectors would experience losses within a decade.

It may be useful to look at these findings in a macroeconomic context. The U.S. unemployment rate for May 2017 was 4.3 percent, the lowest in 16 years and about half as high as during the recent recession. When unemployment is low, additional job growth creates a tighter labor market, so that businesses often have greater difficulties filling job vacancies. In turn, this can accelerate inflation.

It is likely that the business cycle will eventually slow down again. In that event, the AHCA could accentuate job loss and economic contraction. Combined with major increases in the number of uninsured, this could contribute to a period of economic and medical hardship in the U.S. The AHCA could exaggerate both the highs and lows of the business cycle. From a national policy perspective, it may be more useful to develop countercyclical policies that strengthen employment and the economy during times of contraction.

This analysis finds that the net effect of the AHCA would be a loss of almost 1 million jobs by 2026, combined with 23 million more Americans without health insurance, according to the CBO. In late May, the Trump administration released its budget proposal, which appears to propose an additional $610 billion in Medicaid cuts, beyond those included in the AHCA.12 Such deep cuts would further deepen the employment and economic losses discussed in this study.

This analysis has many limitations. We do not know whether or when the AHCA or an alternative will be enacted into law. Alternative policies could yield different effects. We focus only on the consequences of the AHCA. Other legislation, such as infrastructure, trade, national security, or tax policies, may be considered by Congress and might also affect economic growth and employment.

These projections, like others, are fraught with uncertainty. Economic, technical, or policy changes could alter results. In particular, the AHCA grants substantial discretion to states, such as in Medicaid expansions, waivers of federal regulations, and use of new funds like the Patient and State Stability Fund. While this analysis is aligned with CBO’s national estimates, we developed state-level projections, introducing further uncertainty. Our approach conservatively spreads changes across states and may underestimate the highs and lows for individual states.

See original article Here.

Source:

Ku, L., Steinmetz, E., Brantley, E., Holla, N., Bruen, B. (14 June 2017). The American Health Care Act: Economic and Employment Consequences for States. [Web Blog Post]. Retrieved from address http://www.commonwealthfund.org/publications/issue-briefs/2017/jun/ahca-economic-and-employment-consequences


An Update on Health Care and Tax Reform

Make sure you are staying up-to-date with all the recent changes happening in healthcare. Here is a great article by Joseph Minarik from the Committee for Economic Development to help you stay informed with everything going on with the new healthcare legislation.

The status of what may be the Administration’s two highest legislative priorities, health care reform and tax reform, remains uncertain.

The overwhelming consensus in Washington is that the Administration and the Congress have virtually no alternative but to either complete or abandon health care reform before taking up tax reform. That is because both an Administration health care reform (to “repeal and replace” Obamacare, more formally known as the Affordable Care Act, or ACA), and any Administration tax reform, can be enacted only under reconciliation procedures in the Senate (which prevent a filibuster that would require 60 votes to break). By budget process rules, there can be only one reconciliation process in progress at one time. The current process was designed expressly for health care reform. The health care reform process cannot continue if tax reform is begun.

A decision to abandon health care reform would be extremely painful to the many Republicans in Congress who made repealing Obamacare their signature campaign promise. This would certainly be an admission of failure in the current environment, with Republicans controlling the White House and both chambers of the Congress. But that delays and reduces the time available to complete any attempted tax reform. Of course, the relevant policy players can have tax reform conversations among themselves, but that is not the same as actually engaging in a public debate over actual legislative language.

So the current debate over health care legislation is time-sensitive. And passing the House health care bill, the American Health Care Act (AHCA), was extraordinarily difficult. The Senate cannot pass the AHCA, and their passing any similar bill would likely be even more difficult than was the process in the House.

To begin, Democrats will provide zero votes to “repeal” what they hold as the signature achievement of the Obama Administration. Republicans have 52 votes in the Senate, and thus, even under the reconciliation procedure, can afford to lose only two votes. (The Vice President would be called on to break a 50-50 tie.) Thus, the Senate Republicans’ margin for error is extremely small, and the ideological spread of their membership is probably wider than is that of their caucus on the House side.

And under these daunting arithmetic constraints, the Senate health bill must thread several very small substantive needles.

The bill will be under very tight fiscal constraints. The Republicans want the health bill to reduce the deficit, so that the money it saves can be used to pay for tax reform. This is expected even after the repeal of many of the taxes and fees and some of the spending cuts that Obamacare used to finance itself.

The programmatic expectations on the bill will be considerable. Opinion surveys showed “Obamacare” to be highly unpopular. But when not identified with the bill, many of Obamacare’s key features were found to be resoundingly popular – even among Republicans, and even in the very same surveys. One such feature was eliminating discrimination against persons with pre-existing conditions. At the same time, one of the highest House Republican priorities was reducing premiums. The House Republicans could find no alternative way to reduce premiums but to water down the protections for those with pre-existing conditions, in some instances through provisions that were less than totally transparent. The Senate Republicans are likely to be less accepting of such provisions.

The House Republican AHCA sought to attract younger, healthier households to purchase insurance (without the mandate that their Members abhor) by raising the relative premiums of older enrollees. That is unlikely to sit well in the Senate – or at least well enough with a margin of only two votes.

Next on what could be a very long list of concerns is the repeal of Obamacare’s Medicaid expansion. There are 20 Republican Senators who represent states that have expanded Obamacare. As much as some Republicans opposed the Medicaid expansion, the same Senators are unwilling to impose a sudden reduction in their states’ federal funding to repeal it. Many of those Republicans also do not want to remove health care coverage from the working families who were covered by the expansion.

In the broadest terms, Republican Senators will not want to take away a benefit that has been given to the citizens of their states – even though those Senators may have on a principled basis opposed granting that benefit in the first place. But achieving everything that they want to achieve in this bill, subject to a rigorous budget constraint, may prove impossible.

And then, assuming the Senate manages to pass a bill, it will then have to reconcile its very different bill with that of the House. It is always possible that many House and Senate Republicans will decide to sacrifice their preferences to that the Administration can have its first-year victory to set a positive tone (and avoid a highly negative one). But the first instinct of a Member of Congress is almost always self-preservation, and the fondest hope and expectation is that the next election will see the triumph of his or her ideological view and thus the ability to achieve all of the goals that cannot be obtained in the present because of the service of doctrinal purity.

Whether health care reform succeeds or not, the President and the Congress are sure to find that tax reform is every bit as complex as is health care reform. Again, they will begin with the tightest budget constraint, along with a lengthy list of priorities. They already have discussed tax cuts for large businesses and small businesses, public corporations and LLCs, and of course a massive tax cut for the middle class. How all of that happens without widening the already excessive and growing budget deficit is a true puzzle. At present, the House Ways & Means Committee chair continues to maintain that he will put forward a revenue-neutral bill by relying on the so-called “border-adjustment tax” which CED has discussed in a recent policy brief, and which has proven highly unpopular in the Senate. This makes the prospects even more murky.

If all of this fails, which it may or may not, the Administration and the Congress will find themselves at the end of the year with no particular legislative achievement. There is some possibility that they would respond to that conundrum by following the path of least resistance and proposing a large net tax cut, forcing the political opposition to vote against it and thus cross many taxpayers. But that, of course, would worsen the already troubling budget outlook.

See the original article Here.

Source:

Minarik J. (2017 May 17). An update on health care and tax reform [Web blog post]. Retrieved from address https://www.ced.org/blog/entry/an-update-on-health-care-and-tax-reform


GOP Health Care Bill Would Cut About $765 Billion In Taxes Over 10 Years

The passing of the American Health Care Act means there will be a new taxes associated with healthcare. Find out in this article by Scott Horsley and see how this change in legislation will impact you.

The health care bill passed by the House on Thursday is a win for the wealthy, in terms of taxes.

While the Affordable Care Act raised taxes on the rich to subsidize health insurance for the poor, the repeal-and-replace bill passed by House Republicans would redistribute hundreds of billions of dollars in the opposite direction. It would deliver a sizable tax cut to the rich, while reducing government subsidies for Medicaid recipients and those buying coverage on the individual market.

Tax hikes reversed

The Affordable Care Act, also known as Obamacare, is funded in part through higher taxes on the rich, including a 3.8 percent tax on investment income and a 0.9 percent payroll tax. Both of these taxes apply only to people earning more than $200,000 (or couples making more than $250,000). The GOP replacement bill would eliminate these taxes, although the latest version leaves the payroll tax in place through 2023.

The House bill would also repeal the tax penalty for those who fail to buy insurance as well as various taxes on insurance companies, drug companies and medical device makers. The GOP bill also delays the so-called "Cadillac tax" on high-end insurance policies from 2020 to 2025.

All told, the bill would cut taxes by about $765 billion over the next decade.

The lion's share of the tax savings would go to the wealthy and very wealthy. According to the Tax Policy Center, the top 20 percent of earners would receive 64 percent of the savings and the top 1 percent of earners (those making more than $772,000 in 2022) would receive 40 percent of the savings.

Help for the poor reduced

Over time, the GOP bill would limit the federal contribution to Medicaid, while shifting control of the program to states. Depending on what happens to costs, states may be forced to provide skimpier coverage, reduce their Medicaid rolls, or both. The Congressional Budget Office estimated that an earlier version of the bill would leave about 14 million fewer people covered by Medicaid by 2026. (The House voted on the current bill without an updated CBO report.)

CBO also anticipated fewer people would buy insurance through the individual market. With no tax penalty for going without coverage, some people would voluntarily stop buying insurance. Others would find coverage prohibitively expensive, as a result of changing rules governing insurance pricing and subsidies.

The GOP bill would allow insurance companies to charge older customers up to five times more than younger customers — up from a maximum 3-to-1 ratio under the current health law. The maximum subsidy for older customers in the GOP plan, however, is only twice what is offered to the young.

The bill also allows insurance companies to offer more bare-bones policies. As a result, young, healthy people could find more affordable coverage options. But older, sicker people would likely have to pay more.

In addition, because the subsidies offered in the Republican plan don't vary with local insurance prices the way subsidies do in Obamacare, residents of high-cost, rural areas would also suffer. That could include a large number of Trump voters.

See the original article Here.

Source:

Horsley (2017 May 4). GOP health care bill would cut about $765 billion in taxes over 10 years [Web blog post]. Retrieved from address http://www.npr.org/2017/05/04/526923181/gop-health-care-bill-would-cut-about-765-billion-in-taxes-over-10-years


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New CBO AHCA Score Confirms What We Already Knew

The CBO has just released their final score for the revised version of the American Health Care Act (AHCA). Find how the CBO scored this revised piece of legislation and what it means for you in this article by Mark J. Mazur from Tax Policy Center

Meet the new estimate of the American Health Care Act (AHCA).  It looks a lot like the old one.

On May 24, the Congressional Budget Office (CBO) released its estimate of the revised AHCA, which the House of Representatives passed on May 7.  The revised AHCA allows states to opt out of ACA requirements establishing essential health benefits and permits states establishing high-risk pools to allow insurers to set premiums based on health status.  The modified bill sets aside $8 billion to help subsidize these pools.

Like its predecessor, the revised AHCA has four distinct major components.

  1. One would cut taxes paid by high-income individuals (lower taxes on capital gains, divided, and interest income for households with annual income over $250,000) and by companies in specific industries: health insurance, medical devices, prescription drugs, and indoor tanning salons.
  2. The second is a grab bag of tax reductions, such as loosened rules for flexible spending accounts and health savings accounts, repeal of the tax on individuals who can afford but don’t buy adequate health coverage, and a further delay of the excise tax on high-cost health plans (the so-called “Cadillac Tax”).
  3. The third restructures the tax credits that subsidize health care coverage, moving from existing income-related tax credits for purchasing health insurance on the ACA Marketplaces to age-related tax credits to purchase health insurance.
  4. And the fourth cuts Medicaid spending reducing coverage and essentially paying for the tax cuts.

The chart below shows the tax changes (the first two major components mentioned) go almost entirely to the highest earning households, while providing little or no benefit to the bottom 80 percent of the income distribution.  In fact, TPC estimates that a $37,000 average annual tax cut will go to the 1 percent of the population with the highest earnings (annual income of over $772,000).  The top 0.1 percent of the income distribution would receive an annual tax cut of over $200,000 (annual income over $3.9 million).  (Note that this chart shows the estimates for 2022, but incorporates the tax law changes for 2023 as the AHCA phases in some of the tax changes).

The bottom line: CBO estimates confirm the AHCA is largely a tax bill paired up with Medicaid cuts to offset the costs. And, as in the earlier version of the bill, almost all the benefits go to the highest income households in the country.

See the original article Here.

Source:

Mazur M. (2017 May 24). New CBO AHCA score confirms what we already knew [Web blog post]. Retrieved from address http://www.taxpolicycenter.org/taxvox/new-cbo-ahca-score-confirms-what-we-already-knew