If you’re looking for the full 1990-page proposed law and corresponding Congressional actions, you can access it through the Library of Congress website at the following URL:
(Full disclosure: Much of the following was taken from the JCT's technical explanation of the House bill. The original JCT document is available here.)
So without further ado, here is a quick synopsis on the House version of the bill:
I. Directly Tax-Related
A. Tax on Individuals Without Acceptable Health Care Coverage – Would generally impose a tax on such individuals equal to the lesser of (a) the national average premium for coverage for the taxable year, as determined by the Secretary of Treasury in coordination with the Health Choices Commissioner, or (b) 2.5% of the excess of the taxpayer’s modified adjusted gross income for the taxable year over the threshold amount of income required for income tax return filing for that taxpayer. This tax would be in addition to both the regular income tax and the alternative minimum tax and would only apply to US citizens and resident aliens, except if it would give rise to a hardship for the affected person(s). This provision would be effective for taxable years beginning after December 31, 2012.
B. Election to Satisfy Health Coverage Participation Requirements – Would require employers to make an affirmative election regarding whether to offer health benefit plans to employees. Employers electing to offer health benefit plans would be required to meet certain minimum benefit and contribution requirements. Employers choosing not to offer health benefit plans, or offering plans that do not meet the minimum benefit and contribution requirements, would be subject to an 8% excise tax on the wages of the non-covered employees. “Small employers” with annual payroll of not more than $750,000 would be subject to lower rates (as low as zero for those with annual payrolls of no more than $500,000).
Would also generally impose an additional excise tax on employers who elect to provide coverage but whose health benefit plans fail to meet the bill’s health coverage participation requirement in the amount of $100 per day for each employee to whom the failure applies. However, certain good-faith exceptions and offsets would be available. This provision would be effective for periods beginning after December 31, 2012.
C. Credit For Small Business Employee Health Coverage Expenses – Would provide a tax credit to a “qualified small employer” for up to 50% of its qualified health coverage expenses for the taxable year. Qualified employee health coverage expenses would be the aggregate amount paid or incurred by the employer for coverage of any qualified employee of the employer (including any family coverage which covers the employee) under qualified health coverage. However, amounts paid by the employer would not include amounts based on a salary reduction election made by an employee under a cafeteria plan. The credit would be a general business credit, eligible to be carried back for one year and carried forward for 20 years.
Additionally, no credit would be allowed with respect to any taxable year unless the employer elected to have the credit apply. An employer could not elect the tax credit with respect to more than two years. Further, a “qualified small employer” for purposes of the provision is an employer with less than 25 qualified employees employed during the employer’s taxable year, and whose average annual employee compensation is less than $40,000. However, the full amount of the credit would be available only to an employer with no more than 10 qualified employees and whose average annual employee compensation does not exceed $20,000, and the credit would also not be available with respect to qualified employee health coverage expenses for any employee if the employee’s compensation for the taxable year exceeds $80,000. This provision would be effective for taxable years beginning after December 31, 2012.
D. Distributions for Medicine Qualified Only if for Prescribed Drug or Insulin – Would modify the the definition of “medical expense” for purposes of employer-provided health coverage (including HRAs and Health FSAs), HSAs, and Archer MSAs, to conform to the definition for purposes of the itemized deduction for medical expenses. Thus, under the provision, the cost of over-the-counter medicines would not be able to be reimbursed with excludible income through a Health FSA, HRA, HSA, or Archer MSA. This provision would be effective for expenses incurred after December 31, 2010.
E. Limitation on Health Flexible Spending Arrangements (“Health FSA”) Under Cafeteria Plans – Would limit salary reduction contributions by an employee for a taxable year for purposes of coverage under a Health FSA under a cafeteria plan to $2,500. A Health FSA would not be a qualified benefit under a cafeteria plan unless the plan includes this limitation. The provision would not limit the amount permitted to be available for reimbursement under employer-provided health coverage offered through a Health Reimbursement Arrangement (“HRA”), including a flexible spending arrangement, that is not part of a cafeteria plan. The provision would be effective for taxable years beginning after December 31, 2012.
F. Increase in Additional Tax on Distributions from HSAs Not Used for Medical Expenses – Would increase to 20% the amount of additional tax on distributions from an HSA that are not used for qualified medical expenses. The current additional tax is set at 10%. This provision would be effective for disbursements made during tax years starting after December 31, 2010.
G. Offering of Exchange-Participating Health Benefit Plans Through Cafeteria Plans – Would provide that health insurance coverage under any Exchange-participating health benefits plan is not a qualified benefit under a cafeteria plan. However, this rule would not apply to a cafeteria plan maintained by an employer that is an Exchange-eligible employer.
Note: An Exchange-participating health benefits plan is one that is offered through the Health Insurance Exchange. The Health Insurance Exchange is the mechanism (under the auspices of the Commissioner of the Health Choices Administration) through which eligible individuals and employers would obtain coverage.
Thus, only employees who are employed by an Exchange-eligible employer would be permitted to pay for Exchange-participating health benefit plan premiums on a pre-tax basis through salary reduction under a cafeteria plan. However, if an employer were to reimburse an employee for the premiums for an Exchange-participating health benefits plan purchased by the employee and the reimbursement is not through a cafeteria plan, the reimbursement would be excludible from the employee’s gross income whether or not the employer is an Exchange-eligible employer. This provision would be effective for taxable years beginning after December 31, 2012.
H. Surcharge on High-Income Individuals – Would impose a surcharge (i.e., an additional tax) on high income individuals at a rate of 5.4% on “modified adjusted gross income” in excess of a specified amount. In the case of married individuals filing a joint return (or a surviving spouse), that amount would be $1,000,000. In the case of other taxpayers, the threshold is $500,000.
“Modified adjusted gross income” would be defined for this purpose as adjusted gross income (essentially gross income before itemized deductions) reduced by the itemized deduction for investment interest expense.
Would also reduce the aforementioned threshold by excluded (i.e., nontaxed) foreign earned income, less corresponding disallowed deductions and income exclusions.
Finally, would not allow the above surcharge to be reduced by credits (e.g., foreign tax credits), nor would it be taken into account in determining the taxpayer’s alternative minimum tax liability. The provision would apply to taxable years beginning after December 31, 2010.
I. Excise Tax on Medical Devices – Would impose a tax equal to 2.5% on the first taxable sale of a medical device. A medical device, for the purposes of this provision, is any device as defined in section 201(h) of the Federal Food, Drug, and Cosmetic Act, intended for humans.
That section defines a device as:
an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, which is: (1) recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them; (2) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals; or (3) intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of its primary intended purposes.Note, however, that the first taxable sale is the first sale, for a purpose other than for resale, after production, manufacture, or importation. Thus, a retail sale of a medical device would generally be exempt from this excise tax (but would presumably be incorporated into the ultimate retail sales price to consumers). This provision would apply to sales, and leases and uses treated as sales, of medical devices after December 31, 2012.
J. Require Information Reporting on Payments to Corporations – Would require businesses to file an information return for all payments aggregating $600 or more in a calendar year to a single payee (other than a payee that is a tax-exempt corporation). The payments to be reported would include gross proceeds paid in consideration for property or services. This provision would be effective for payments made after December 31, 2011.
K. Repeal of Worldwide Allocation of Interest – Would repeal the worldwide interest allocation rules (which were just recently delayed by the Worker, Homeownership, and Business Assistance Act of 2009 until taxable years beginning after December 31, 2017).
These rules were enacted as part of the American Jobs Creation Act of 2004, which modified the interest expense allocation rules (which generally apply for purposes of computing the availability of foreign tax credits) by providing a one-time election under which the taxable income of the domestic members of an affiliated group from sources outside the United States generally is determined by allocating and apportioning interest expense of the domestic members of a worldwide affiliated group as if all members of the worldwide group were a single corporation. A full discussion of these rules are outside the scope of this alert, but we welcome your questions if you would like to discuss it in detail.
L. Limitation on Treaty Benefits for Certain Deductible Payments – Would limit tax treaty benefits with respect to U.S. withholding tax imposed on deductible related-party payments. Under the provision, the amount of U.S. withholding tax imposed on deductible related-party payments could not be reduced under any U.S. income tax treaty unless such withholding tax would have been reduced under a U.S. income tax treaty if the payment were made directly to the foreign parent corporation of the payee. Interestingly, while this provision is intended to fight perceived instances of treaty-shopping or interest-stripping, it could also provide treaty benefits that were not otherwise available (e.g., if the payment recipient was subject to a higher withholding rate than that available to the foreign parent company).
A deductible related-party payment is one that (1) is made directly or indirectly by any entity to any other entity, (2) is allowable as a deduction for U.S. tax purposes, and (3) where both entities are members of the same foreign controlled group of entities. This provision would be effective for payments made after the date of enactment.
M. Codification of Economic Substance Doctrine; Penalties – Would clarify and enhance the application of the “economic substance doctrine.” This doctrine generally stands for the proposition that taxpayers should generally be denied tax benefits for transactions that do not result in a meaningful change to the taxpayer’s economic position other than a purported reduction in income tax, but has not always been uniformly applied by the various courts.
Under the provision, any transaction to which the economic substance doctrine is relevant would be treated as having economic substance only if (1) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position, and (2) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction. This provision would not change current law standards in determining when to utilize an economic substance analysis.
Would also impose a new strict liability penalty for understatements attributable to any disallowance of claimed tax benefits by reason of a transaction lacking economic substance (or any similar rule of law), with a higher rate of penalty if the transaction was not adequately disclosed. This means that the current “reasonable cause” and “good faith” penalty exceptions would no longer be available.
This provision would apply to transactions entered into after the date of enactment. Additionally, this provision would apply to underpayments, understatements, and refunds and credits attributable to transactions entered into after the date of enactment.
N. Certain Large or Publicly Traded Persons Made Subject to a More Likely Than Not Standard for Avoiding Penalties on Underpayments – Would apply a new standard to “specified persons” seeking to avoid underpayment penalties. Such persons are generally those who either (1) are publicly-traded companies, or (2) corporations with gross receipts in excess of $100 million for the taxable year involved.
This standard would only allow these specified persons to use the current “reasonable cause” and “good faith” exceptions to the underpayment penalty if they had a reasonable belief that the tax treatment of a disputed item by such person is “more likely than not” the proper tax treatment. In this context, “more likely than not” means that there is a greater than 50% likelihood that the tax treatment of the item would be upheld if challenged by the IRS, based on an analysis of all relevant authorities (e.g., code, regulations, case law, rulings, etc.) as applied to the taxpayer’s particular facts and circumstances.
This provision would apply to underpayments and understatements attributable to transactions entered into after the date of enactment.
O. Certain Health Related Benefits Applicable to Spouses and Dependents Extended to Eligible Designated Beneficiaries – Would extend the general exclusion for employer-provided health coverage to “eligible beneficiaries.” An eligible beneficiary is any individual who is eligible to receive benefits or coverage under an accident or health plan.
Would also permit self-employed individuals to take a deduction for an individual who meets the following criteria: (1) younger than age 19 (24 for full-time students); (2) has the same principal abode as the taxpayer and is a member of the taxpayer’s household for the taxable year; and (3) receives more than one-half of his or her support from the taxpayer for the calendar year in which the taxable year begins.
Would also permit a self-employed individual to take a deduction for an individual who is (1) older than age 19 (or 24 for students); (2) has the same principal abode as the taxpayer and is a member of the taxpayer’s household for the taxable year; and (3) is not the individual’s spouse, qualifying child or qualifying relative. Individuals would only be permitted to take a deduction for one such individual in any tax year.
This provision would be effective for taxable years beginning after December 31, 2009.
II. Not Tax-Related
A. Requiring the Option of Extension of Dependent Coverage for Uninsured Young Adults – Would provide that a group health plan, and a health insurance issuer offering group health insurance coverage, that provides coverage for dependent children is required to make such coverage available, at the election of participants, to their qualified children.
A qualified child would be defined as an individual under the age of 27 who would, but for his or her age, be treated as a dependent child of the participant under the plan and who is not enrolled as a participant, beneficiary or enrollee under any health insurance coverage or group health plan.
The provision would not prevent a group health plan or health insurance issuer from increasing premiums otherwise required for coverage provided to a qualified child, consistent with standards established by the Secretary of Health and Human Services based on family size.
The provision would further amend the Public Health Service Act to apply the rules regarding the extension of dependent coverage to health insurance coverage offered by a health insurance issuer in the individual market.
The provision would apply to group health plans, and health insurance issuers offering group health insurance coverage, for plan years beginning on or after January 1, 2010. The provision would also apply with respect to health insurance coverage offered, sold, issued, renewed, in effect, or operated in the individual market on or after January 1, 2010.
B. Limitations on Preexisting Condition Exclusions in Group Health Plans in Advance of Applicability of New Prohibition of Preexisting Condition Exclusion – Would reduce the permissible look-back period (currently 6 months) and the preexisting condition exclusion period (currently 12 months) during the period of time prior to the date the prohibition on pre-existing condition exclusions under the bill takes effect. Under the provision, the permissible look-back period would be reduced to a 30-day period ending on the enrollment date and the permissible pre-existing condition exclusion period would be reduced to 3 months after the enrollment date. The provision would further provide that, as of the date the prohibition on pre-existing condition exclusions under the bill apply to a group health plan, the current law provisions that permit the plan to impose a limited pre-existing condition exclusion period no longer apply to such plan.
This provision would apply to group health plans for plan years beginning on or after January 1, 2010. In the case of a group health plan maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers ratified before the date of enactment of the bill, the provision would not apply to plan years beginning before the earlier of the date on which the last of the collective bargaining agreements relating to the plan terminates (determined without regard to any extension agreed to after the bill’s date of enactment) or three years after the date of enactment.
C. Prohibiting Acts of Domestic Violence From Being Treated as Preexisting Conditions – Would provide that a group health plan may not impose any pre-existing condition exclusion on the basis of domestic violence. In addition, the provision would provide that a health insurance issuer in the individual market may not impose any pre-existing condition exclusion on the basis of domestic violence.
This provision would apply to group health plans, and health insurance issuers offering group health insurance coverage, for plan years beginning on or after January 1, 2010. The provision would apply with respect to health insurance coverage offered, sold, issued, renewed, in effect, or operated in the individual market on or after such date.
D. Ending Health Insurance Denials and Delays of Necessary Treatment for Children With Deformities – Would provide that a group health plan, and a health insurance issuer offering group health insurance coverage, that provides coverage for surgical benefits is required to provide coverage for outpatient and inpatient diagnosis and treatment of a minor child’s congenital or developmental deformity, disease, or injury. A minor child would be any individual who is 21 years of age or younger.
For purposes of the provision, treatment would include reconstructive surgical procedures (procedures that are generally performed to improve function, but may also be performed to approximate a normal appearance) that are performed on abnormal structures of the body caused by congenital defects, developmental abnormalities, trauma, infection, tumors, or disease. Procedures covered by the provision would include those that do not materially affect the function of the body part being treated and procedures for secondary conditions and follow-up treatment. Treatment would not include cosmetic surgery performed to reshape normal structures of the body to improve appearance or self-esteem.
This provision would apply to group health plans and health insurance issuers offering group health insurance coverage for plan years beginning on or after January 1, 2010. The provision would apply with respect to health insurance coverage offered, sold, issued, renewed, in effect, or operated in the individual market on or after such date.
E. Elimination of Lifetime Limit – Would not allow a group health plan to impose an aggregate lifetime limit with respect to benefits payable under the plan. The term “aggregate lifetime limit” would mean, with respect to benefits under a group health plan, a dollar limitation on the total amount that may be paid with respect to an individual (or other coverage unit) on a lifetime basis.
This provision would apply with respect to group health plans for plan years beginning on or after January 1, 2010.
F. Extension of COBRA Continuation Coverage – Would extend COBRA coverage periods for covered individuals until the individual becomes eligible for (a) acceptable coverage as defined in the bill, or (b) health insurance coverage through the Health Insurance Exchange (or a State-based Health Insurance Exchange operating in a State or group of States). The extension of the COBRA continuation coverage period would apply only to individuals whose coverage period is due to end because of the expiration of a specified number of months; there is no extension of the COBRA continuation coverage period in the case of other terminating events (e.g. failure to make timely payment of premiums). The extension of COBRA coverage continuation periods would not be available for health flexible spending arrangements.
This provision would be effective on the bill’s date of enactment.
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