On March 8th we published two blog posts detailing pending legislative changes. The first, Details on the House Health Care Bill’s Numerous Tax Changes, summarized the tax changes contemplated by the House Republican’s bill (the American Health Care Act, or AHCA) to repeal and replace the Affordable Care Act. The second, Proposed Expansion of New York State Real Estate Transfer Tax, described legislation introduced in the New York State Legislature that would amend the existing New York State Real Estate Transfer Tax (“NY State RETT”) to tax transfers of minority interests in certain entities holding real estate located in New York. We have updates for you on both.
Changes to the AHCA. Last night, the Republican leadership in the House of Representatives introduced Manager’s Amendments that make various policy and technical changes to the tax relief proposed in the AHCA. Notably, the amendments accelerate the effectiveness by one year (to taxable years starting after December 31, 2016) of the provisions which:
- Repeal the 3.8% tax on certain net investment income under Section 1411
- Repeal the .9% Medicare surtax on wages above certain thresholds
- Repeal annual fees imposed on health insurance providers
- Repeal annual fees imposed on certain manufacturers and importers of branded prescription drugs
- Repeal the medical device tax
- Repeal the limitation on salary reduction contributions for health flexible spending arrangements
- Lower the applicable tax on distributions from HSAs includible in income
- Expand the definition of qualified medical expenses to include over-the-counter medicine
- Eliminate the limitation on deductibility of remuneration paid by health insurance providers
- Reinstate the deduction for certain expenses allocable to Medicare part D subsidies
The amendments also delay the excise tax on “Cadillac plans” to 2026 instead of 2025, further lower the threshold for deductibility of medical expenses (effective for taxable years after December 31, 2016), and accelerate the repeal of the sales tax on indoor tanning services to services rendered after June 30 of this year.
Although initial reports indicated that the amendments would include an expansion of the tax credits available for older Americans to buy insurance, the amendments appear to leave the tax credit amounts unchanged, which are instead expected to be addressed by the Senate. The amendments do, however, include a new proposal to reduce the medical expense deduction allowed under section 162(l), starting in 2020 for taxable years ending after December 31, 2019, by the amount of the tax credit allowable to the taxpayer for the taxable year. The amendments also eliminate a provision in the original bill that would have allowed taxpayers to request that allowable tax credits in excess of the taxpayer’s spending on eligible health insurance be deposited into health savings accounts.
The Joint Committee on Taxation and the Congressional Budget Office have yet to release reports analyzing the effect of the amendments, which are expected before the bill is voted on by the House. The House’s Committee on Rules is scheduled to review the legislation tomorrow, and Speaker Paul Ryan has indicated the proposed legislation will move to the floor of the House on Thursday. Passage in the Senate remains uncertain.
Minority Transfer Rule Passes Assembly; Axed in Senate. Last week, the New York State Assembly and New York State Senate each passed one-house budget resolutions and corresponding legislation. The Assembly’s version of the budget adopted the NY State RETT minority transfer legislative language proposed by Governor Cuomo without change. The Senate’s version removed the proposed changes to the NY State RETT entirely. The passage of the one-house budget resolutions marks the official start to the final negotiations over the state budget in advance of the new fiscal year, which begins April 1.
In past years, this negotiation has taken the form of closed-door meetings between the Governor, the leaders of the majority conferences in both houses (Assembly Speaker Carl Heastie (D-Bronx) and Senate Majority Leader John Flanagan (R-2d (parts of Long Island))) and Independent Democratic Conference leader Jeff Klein (D-Bronx/Westchester).
As currently drafted, the proposed expansion of the NY State RETT would be effective on the date on which the budget legislation is enacted into law, and would apply to transfers occurring on and after that date. We will be watching for the final budget.