Legislators have been working overtime for the past 12 months, but with all the buzz surrounding this renewed Congressional action, tax implications of new legislation are often overlooked.
In brief, there are three significant pieces of legislation that could affect taxpayers. The first is an extension of tax provisions such as Section 179 deductions that benefit small businesses. Several years ago, limits on Section 179 depreciation and bonus deductions were raised to encourage business spending. Extensions to these raised limits have passed in the House but not yet in the Senate. Similarly, the House voted to extend into 2010 a tax on estates that was originally set to expire at the end of 2009. However, the Senate has not yet passed a bill extending the estate tax into this year.
The third piece of legislation continues to be debated on both the House and Senate floors — a comprehensive health care reform bill. While each house of Congress has passed its own version of the bill, a uniform piece of legislation still eludes lawmakers.
“Any taxpayer would be well served to be fully aware of the tax provisions contained within these three bills,” says Walter M. McGrail, JD, CPA, a senior manager at Cendrowski Selecky PC. “However, while the implications of Section 179 and estate tax bills are more frequently discussed, those related to the health care bill have attracted little attention to date.”
Smart Business spoke with McGrail about the two versions of the health care bill, the tax provisions included within them and what expectations taxpayers should form regarding pending legislation.
What is the major difference between the House’s health care bill and the Senate’s?
What will attract the most attention is the different ways the House and the Senate approached paying for health care reform.
The House bill contains a provision to tax high-income individuals. This would create a surtax on anyone making more than $1 million if married/filing jointly, or more than $500,000 for any other taxpayer. If you surpass those limits, you will have to pay an additional 5.4 percent on all the income that goes over the limit.
The Senate took a different route by increasing the Medicare tax on wages and self-employment income over certain limits. The current combined employer and employee tax on self-employment income is 2.9 percent. The Senate’s bill would raise the rate an additional 0.8 percent, to 3.7 percent, effective for all wages and self-employment income in excess of $250,000 if married/filing jointly, or in excess of $200,000 for all other taxpayers.