President Joe Biden has proposed a budget for fiscal year 2022 that could make the current temporary increase in health insurance premium tax credit subsidies permanent.
The proposal could also increase the amount of tax revenue going to the main Medicare trust fund, by applying the net investment income tax or self-employment tax to a larger portion of the income of high-income taxpayers, and by sending the income from the net income tax investment into the main Medicare trust fund.
Today, net investment income tax revenue goes to the US Treasury.
The Biden administration described the Affordable Care Act premium tax credit increase proposal on page 1,061 of the main budget annex file.
Related: Increasing Premium Grants Will Test ACA Trading System
The administration has outlined the proposed changes in the scope of the net investment income tax and the self-employment tax in a section that begins on page 71 of the The US Treasury Department’s “Green Book” or a description of the Biden administration’s proposals to increase revenues.
The 2022 fiscal year begins on October 1.
The budget proposal, a document outlining the Biden administration’s spending and revenue ideas, is under consideration by Congress.
The proposed increase in the tax credit on health insurance premiums
Beginning in 2014, the Affordable Care Act began offering tax credits to people who purchased major commercial medical insurance through the public trading system ACA – the family of online health insurance supermarkets that includes HealthCare.gov, Covered California, and the New Pennsylvania Pennie Exchange. .
Trade-in plan users with incomes between approximately 138% of the federal poverty level and 400% of the federal poverty level could use ACA tax credits to pay some or all of their insurance premiums .
In March, when Congress passed the American Rescue Plan Act of 2021, it attempted to help uninsured people cope with the COVID-19 pandemic by giving them larger tax credits.
An article of the law provided for temporary assistance in the form of subsidies for all unemployed persons. Another article, Section 9661, provided for more generous subsidy levels for 2021 and 2022.
The Biden administration indicates in the annex to the 2022 budget that it wants to “make permanent the extension of the premium tax credit implemented in section 9661 of the US bailout”.
An ACA premium tax credit subsidy is supposed to keep what a consumer pays in cash for health coverage at a certain percentage of the consumer’s “modified adjusted gross income” or MAGI.
When the federal government describes the ACA premium tax credit subsidies, it shows the maximum amount of MAGI that people will have to pay out to be covered. Once the subsidy users pay their share of the premium bills, the government then pays the remainder of the premiums.
Here’s how Section 9661 changed the share of MAGI that people must spend to be covered, from MAGI spending levels that were in effect before the ARP came into effect.
- 100% to 133%: 0% of (was 2.07%)
- 133% to 150%: 0% (from 3.1% to 4.14%)
- 150% to 200%: 0 to 2% (down from 4.14% to 6.52%)
- 200% to 250%: 2% to 4% (down from 6.52% to 8.33%)
- 250% to 300%: 4% to 6% (down from 8.33% to 9.83%)
- 300% to 400%: 6% to 8.5% (vs. 9.83%)
- More than 400%: 8.5% (instead of having no limit)
The Biden budget proposal does not appear to include the temporary tax subsidy on ARP premiums for the unemployed.
The proposed expansion of the net investment income tax and the self-employment tax
An important and high-profile revenue-generation provision in the Biden budget proposal would impose a retroactive increase in capital gains tax.
The Biden administration predicts that changes to the rules for taxing capital gains could generate $ 7.7 billion in 2022 and about $ 25 billion in 2023. That income would go to the US Treasury.
Biden’s budget also provides for capital gains taxes on almost any increase in the value of assets that a taxpayer leaves to his heirs.
Other changes, which could directly increase the amount of income supporting Medicare, would have a large effect on high-income people with substantial investment income and on people who earn money by actively working in as sponsors in partnerships or as owner-employees. of S.
Today, taxpayers who are general partners or sole owners pay self-employment taxes on their business income. High-income taxpayers subject to self-employment tax pay 3.8% of their salary and other income to Medicare.
The federal government imposes a net investment income tax of 3.8% on the investment income of single taxpayers who earn at least $ 200,000 and couples who earn at least $ 250,000 and file joint returns. The revenue from this tax goes to the US Treasury.
Owners of S corporations and limited partners who are active owner-employees in partnerships cannot pay either self-employment tax or net investment income tax, treasury officials report.
Biden’s budget proposal calls on all high-income taxpayers to pay 3.8% Medicare tax, whether through the self-employment tax or through the net investment income tax , and that net tax revenues on investment income go to the main Medicare trust fund. .
This means that some limited partners and members of limited companies who now pay no Medicare tax would end up paying 3.8% Medicare tax, the officials write.
Self-employment tax exemptions for certain types of partnership income, such as rent and capital gains, would continue to apply, but the definition of “net investment” would be broadened to “include any gross or gross income. gain from any trade or business that is not otherwise subject to employment taxes.
Administration officials predict that the changes would generate $ 11 billion in new revenue in 2022 and more than $ 19 billion in new revenue in 2023.
What does that mean
If you sell health insurance, the budget raises the possibility that customers under 65 have a much better chance of getting help from the government to pay for their coverage, even if they earn enough to have a good outlook individual life insurance, individual annuities and individual disability insurance.
If you sell life insurance and annuities, the proposal means that, at the very least, you may have the opportunity to team up with tax advisers to discuss the implications of the new income tax proposals. net investment income, self-employment tax and capital gains tax.