18 Tax Changes in Senate Healthcare Bill

Senator Harry Reid’s (D-NV) healthcare legislation has 18 tax changes according to Americans for Tax Reform. Here’s a list of the taxes and their impacts (note: Dollar figures are single/single 2+ (S2) or MFJ):

1. Individual Mandate Tax. For those who don’t purchase health insurance, this will start at $95/$285 (S2) in 2014 and rise in 2016 and future years to $750/$2250.

2. Employer Mandate Tax. On businesses with 50+ employees that do not offer health care, and at least one employee qualifies for a tax credit, $750/employee. This will cause many small businesses to stop growing once they reach 49 employees.

3. Excise Tax on Health Insurance Plans. Beginning in 2013, 40% tax on plans costing $8500/$23,000. Is indexed to CPI. In high premium states such as California, many plans would pay this tax. My health insurance would likely pay this tax…and it’s not a Cadillac plan.

4. Health Insurance would be reported on W-2s. Another mandate that increases costs for business.

5. “Medicine Cabinet Tax.” Limitation on HSAs, FSAs, and MSAs to purchase non-prescription medication except insulin. Note that this is also in the House healthcare bill.

6. HSA Withdrawal Tax Increased. The tax would increase to 20% from 10%. This is also in the House legislation.

7. FSAs capped at a maximum of $2500. They are now uncapped.

8. 1099 Reporting for corporations. Requires businesses to send 1099-MISCs to corporations. This is another cost for businesses.

9. Tax on Charitable Hospitals. This excise tax of $50,000 per hospital impacts hospitals that don’t meet new Department of Health and Human Services regulations.

10. Tax on Drug Companies. The tax would be $2.3 billion based on sales percentage.

11. Tax on Medical Device Manufacturers. The $2 billion tax is also based on sales percentage.

12. Tax on Health Insurers. A $6.7 billion tax based on percentage of health insurance premiums collected.

13. Elimination of tax deduction for employer provided retirement prescription drug coverage.

14. Increase of percentage of AGI required to deduct medical expenses from 7.5% to 10%. Few can deduct medical expenses today; fewer will be able to deduct them tomorrow.

15. Compensation Limitation for Health Insurance Executives. If you work in that industry, you will be limited to a salary of $500,000.

16. Medicare Payroll Tax Hikes. Once your income exceeds $200,000/$250,000 (MFJ), you will pay an additonal 0.5% tax. Note that the employer will only collect (and be responsible for this tax) if you earn $200,000/$250,000 or more. This also impacts the self-employed. And the law is written so that the self-employed cannot deduct half of the new tax as a deduction to income tax.

17. Blue Cross Tax. There is a tax deduction available today for Blue Cross and Blue Shield companies; this tax deduction will vanish if they don’t spend 85% (or more) of premiums on clinical services.

18. Excise Tax on Cosmetic Medical Procedures. A new 5% excise tax on these procedures.


Remember, all tax increases are passed to consumers. There is no free lunch. If this legislation passes, you and I will be paying more for less.

Additionally, when government takes more, businesses either have to increase prices, cut wages, or do something else to still make a profit. If this legislation passes businesses will cut staffing. That’s basic economics, something sorely lacking in Washington.

Businesses will increase prices, but the law of supply and demand dictates that their revenues will likely decrease because of the higher prices.

I haven’t seen a tax professional speak in favor of this legislation. And I doubt I will; this measure will increase costs for businesses, lead to higher cots for consumers, and will almost certainly lead to a single-payer system. Peversely, this measure would likely lead to more business for me…for all the wrong reasons. As Joe Kristan says, “It’s unpopular, unworkable, and insane, so naturally they’re in a hurry to pass it.” Truer words have never been spoken.

Other coverage:
Roth Tax Updates
Don’t Mess With Taxes
Tax Lawyer’s Blog

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