The Senate bill contains tax credits for low- and middle-income families, but the House bill has proposals that would affect high earners.
Senate Finance Committee Chairman Max Baucus, D-Mont., introduced health care reform legislation Wednesday that he says will cost $856 billion, but will not add to the federal deficit.
While providing tax credits to small businesses that offer health insurance and offering low- and middle-income earners various incentives and tax credits to purchase health insurance, the bill does not contain provisions directly affecting the taxes of higher-income earners. It does, however, contain a provision proposing an excise tax on insurance companies that sell expensive health care policies.
By contrast, the bill approved by the House Ways and Means Committee on July 17 -- America's Affordable Health Choices Act of 2009 -- contains many tax-related provisions that affect individuals. While nothing has been decided, of course, several of those tax provisions may wind up in legislation that eventually makes it through the House and Senate. Here are some measures of the House bill your clients should know about:
Surtaxes: The bill's surtaxes on high-income individuals have received a lot of press. The surtax for a married couple filing a joint return is proposed as 1% of modified adjusted gross income between $350,000 and $500,000, 1.5% of MAGI between $500,001 and $1 million and 5.4% of MAGI over $1 million. Single taxpayers would pay the surtax on 80% of these MAGI levels. The surtax would begin January 1, 2011, which is the same date that the top brackets increase to 36% and 39.6%.
The first surtax would be eliminated after 2012 if the Office of Management and Budget determined that there would be more than $175 billion in health reform savings above the level currently projected. If the additional savings were less than $150 billion, the first and second surtaxes would increase from 1% and 1.5% to 2% and 3%, respectively. MAGI is the taxpayer's adjusted gross income less the deduction for investment interest expense.
Non-insurance penalty: The Ways and Means bill requires individuals to have acceptable health care coverage. Acceptable is defined in the bill and is broad. If health care coverage were not available through an employer, individuals would have the option of obtaining it through a national “gateway.” But if they didn't obtain coverage, individuals would be charged an additional tax of 2.5% of MAGI to a maximum tax of the “national average premium” for that year.
Employer taxes: Employers would be required to provide benefit plans that met certain minimum standards. If the employer failed to meet these standards, an excise tax of $100 per employee for each day the employer were not in compliance could be charged. One of the minimum standards would be employer funding of the premium equal to 72.5% of the lowest cost plan offered by the “gateway” (65% for employees electing family coverage).
Some companies could deem this cost to be too high. In that case, the employer could decide not to provide the required coverage but would be charged an additional tax equivalent to 8% of employee wages. Employers with a payroll below $400,000 would be subject to a reduced rate. This provision would be effective after December 31, 2012. Tax credits would be available for small businesses to subsidize the cost of coverage.
