Government funding bill suspends medical device excise tax and health insurance industry fee

President Donald Trump has signed a temporary extension of government funding (H.R. 195) that will suspend the medical device excise tax and health insurance industry fee, while further postponing the 40% excise “Cadillac” tax on high-cost health plans. The legislation does not include extensions of many other popular temporary tax provisions known as “extenders.”

Time is running out for the extender provisions, many of which expired at the end of 2016. The filing season is set to open Jan. 29, so the last chance to extend these provisions retroactively for 2017 in a way that is administrable is likely with the next extension of government funding. H.R. 195 will only fund the government for an additional three weeks through Feb. 8.

Health care taxes The legislation suspends the 2.3% medical device excise tax for sales in 2018 and 2019. The tax was in effect from 2013 through 2015 before it was suspended for 2016 and 2017. It took effect again briefly for sales on or after Jan. 1, but has now been suspended retroactively. Device makers do not need to remit any taxes due this month, and the IRS is expected to offer refunds of any tax that was already remitted. The tax is now not scheduled to take effect again until sales on or after Jan. 1, 2020, but it is unpopular with both parties and likely to be further suspended or repealed altogether.

The bill also creates a similar one-year moratorium on the health insurance industry fee. It was first imposed in 2014 as an $8 billion fee allocated based on market share among all insurers with “aggregate net premiums written.” The fee rose to $11.3 billion for 2015 and 2016, but was not in effect for calendar year 2017. It was scheduled to return at a $14.3 billion level in 2018, but will now be suspended an additional year. Like the medical device excise tax, it is unpopular and likely to be delayed again.

The 40% excise “Cadillac” tax on high-cost health plans has never taken effect. It was originally scheduled to begin in 2018, but was postponed until 2020. H.R. 195 further postpones the tax until 2022. This provision is even less popular than the medical device excise tax and health insurance industry fee and is not expected to ever take effect.

Extenders The legislation does not reinstate any of the temporary extender provisions that expired at the end of 2016. There are fewer expired extenders than in similar situations in past years because 2015 legislation made permanent many of the most popular provisions that were typically part of extender packages. Other former temporary tax provisions were addressed as part of tax reform. The remaining extenders have less widespread support, and are facing opposition. House Ways and Means Committee Chair Kevin Brady, R-Texas, in particular, does not want to pass another temporary extension of the provisions.

Still, the provisions have some support, and reinstatement is possible on the next funding bill. Senate Finance Committee Chair Orrin Hatch, R-Utah, has introduced an extender package he is hoping to enact. It would reinstate most of the tax provisions that expired at the end of 2016, including:

  • Deduction for mortgage insurance premiums
  • Exclusion for principal residence debt forgiveness income
  • Above-the-line deduction for qualified tuition
  • Indian employment tax credit under Section 45A
  • Railroad track maintenance tax credit under Section 45G
  • Mine rescue team training credit under Section 45N
  • Qualified zone academy bonds
  • Three-year depreciation for racehorses
  • Seven-year cost recovery for motor-sports entertainment complexes
  • Expensing for advanced mine safety equipment
  • Special expensing for film and television and live theatrical productions
  • Section 199 deduction for Puerto Rican production activities
  • Alternative and biofuel fuel credits
  • Section 48 and section 45 energy credits for property types excluded from last extension
  • Section 45L credit for energy efficient new homes
  • Section 179D deduction for energy-efficient commercial building property

The legislation would extend most of these provisions through the end of 2018, through there are exceptions. Any extension will need to come quickly in order to avoid administrative issues with 2017 returns.

Contacts Dustin Stamper
Director, Washington National Tax Office
T +1 202 861 4144

Eddie Adkins
Partner, Washington National Tax Office
T +1 202 521 1565

Shamik Trivedi
Manager, Washington National Tax Office
T +1 202 521 1511

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