Chart: How the New Tax Bill Could Impact You

From NPR:

Tax Brackets Under The Proposed Plan

How Proposed Tax Code Changes Affect …

People who take the standard deduction

CURRENT LAW

In 2018, single taxpayers will deduct $6,500, and married couples will deduct $13,000. Then, taxpayers can add in exemptions — $4,150 for each qualifying person, including oneself. For a single person, this comes out to $10,650. For a hypothetical two-parent home with two kids, it would come out to $13,000 plus four times $4,150, or $29,600.

PROPOSED: TAX CUTS AND JOBS ACT

A single taxpayer would deduct $12,000, a head of household would deduct $18,000, and a married couple would deduct $24,000. However, none will tack on any additional exemptions.

This means that single person would deduct $12,000 and not $10,650. The single parent would deduct $18,000 and not $17,650. Meanwhile, the two-parent home with two kids would get a $24,000 deduction now, not $29,600. However, that household could also get a bigger child tax credit.

In other words, the total of the standard deduction plus exemptions would be smaller for some families with multiple children than it was before. The repeal of personal exemptions would sunset after 2025.

A nearly doubled standard deduction would also mean fewer taxpayers itemizing their deductions, which Republicans argue would make it easier to do their taxes.

Parents

CURRENT LAW

Taxpayers deduct a set amount — $4,150 per qualifying child — from their taxable income. Then, they apply the child tax credit by subtracting up to $1,000 per child from the final tax bill. (The total amount depends on a tax filer’s income; the credit phases out as income gets higher.) People can apply for a refundable additional child tax credit, which gives them some money back if their total tax liability is zero.

Employees can exclude the value of up to $5,000 in employer-provided dependent care assistance from their income. In these programs, employers might reimburse employees for child care by means of a flexible spending account, for example.

People can also get a child and dependent care credit of up to $3,000 for the cost of caring for a child or other dependent (or $6,000 for more than one child or dependent). In addition, there is an adoption tax credit of $13,750 per child.

PROPOSED: TAX CUTS AND JOBS ACT

Taxpayers would not apply exemptions for their children. They would, however, apply a larger child tax credit, of up to $2,000 per child. This could help families make up for the loss of exemptions (as explained above). It would also make the credit refundable up to $1,400 — meaning that people who owe nothing in federal income taxes could still get up to $1,400 back from this tax credit. The bill would create an additional $500 tax credit for nonchild dependents. These provisions would expire after 2025.

The bill also keeps the adoption tax credit and the dependent care exclusion.

People with 401(k) accounts

CURRENT LAW

Taxpayers can contribute up to $18,500 in pretax income to tax-preferred retirement accounts like 401(k)s for tax year 2018.

PROPOSED: TAX CUTS AND JOBS ACT

Despite some talk initially of lowering the limit on 401(k) contributions, this would not change.

People who deduct state and local taxes

CURRENT LAW

Tax filers who itemize deductions can deduct different types of state and local taxes from their taxable income on their federal tax returns.

PROPOSED: TAX CUTS AND JOBS ACT

Itemizers could still deduct state and local taxes, but only up to $10,000. That $10,000 could include property taxes and either sales or income taxes.

People who plan to leave their relatives very (very) large estates

CURRENT LAW

Taxes must be paid on any estate with assets worth more than $5.6 million for tax year 2018 (or $11.2 million per married couple). The tax rate on those assets ranges from 18 percent to 40 percent, depending on the size of the estate. Right now, only a tiny sliver of the very wealthiest estates are subject to this tax.

PROPOSED: TAX CUTS AND JOBS ACT

The estate tax exemption would immediately double, meaning individual estates would be taxed only on assets of more than $11.2 million for tax year 2018.

Small-business owners

CURRENT LAW

Sole proprietorships, as well as a few other types of businesses (not all of them small), are taxed through the individual income tax code and at individual income tax rates. (For this reason, they are often called “pass through” businesses, as their income gets passed on to the owner, who files the taxes with her income tax returns.)

PROPOSED: TAX CUTS AND JOBS ACT

The bill would allow pass-through-business owners to deduct a portion of their business income. The deductible amount would be smaller for some higher-income pass throughs. In addition, the bill includes provisions to try to keep high-income wage earners from converting to pass-through businesses to take advantage of the deduction. Altogether, the bill would limit the effective tax rate on these businesses to no more than 29.6 percent.

Homeowners

CURRENT LAW

Homeowners who itemize their deductions can deduct the interest paid on up to $1 million of their mortgage principal.

PROPOSED: TAX CUTS AND JOBS ACT

The deduction would be limited to up to $750,000 of new mortgages, not $1 million. It would allow homeowners to deduct the interest on mortgages from both first and second homes and would not affect existing mortgages. The provision would expire after 2025.

People with large medical expenses

CURRENT LAW

Taxpayers can deduct the cost of out-of-pocket medical expenses, if the total cost exceeds 10 percent of the taxpayer’s adjusted gross income.

PROPOSED: TAX CUTS AND JOBS ACT

The bill would lower the floor for deductible expenses to 7.5 percent of adjusted gross income, but only in 2018 and 2019. It would revert to 10 percent in 2020.

College and graduate students

CURRENT LAW

A variety of tax policies benefit current students and college graduates. Taxpayers whose colleges or universities give them tuition reductions, often called “tuition waivers,” can exclude that amount from their income.

Workers may also exclude up to $5,250 in employer-provided education assistance from their taxes. Taxpayers may also deduct some tuition and student loan interest payments from their taxes. In addition, tax credits including the American opportunity tax credit, Hope Scholarship credit and lifetime learning credit help students afford their education.

PROPOSED: TAX CUTS AND JOBS ACT

The bill would preserve these credits, as well as tuition waivers.

People with health insurance

CURRENT LAW

People must purchase health insurance or pay a penalty on their taxes — a provision known as the “individual mandate.”

PROPOSED: TAX CUTS AND JOBS ACT

The individual mandate penalty would be reduced to zero. This would mean some people would choose not to purchase insurance and that others would not be able to afford it.

House Unveils Package to Delay ObamaCare Taxes and Employer Mandate

From the Hill:  

House Republicans on Tuesday unveiled a package of bills to delay a range of ObamaCare taxes, which could be acted on later this month. 

House Ways and Means Chairman Kevin Brady (R-Texas) led the announcement for the bills to delay ObamaCare’s tax on medical devices for five years, on health insurance for two years, and the "Cadillac tax" on high-cost health plans for one year. The package would also eliminate penalties for employers who do not offer health insurance to their workers, under the employer mandate, through 2018. 

The bills are only supported by Republicans at the moment, but they come after bipartisan negotiations with Democrats on delaying the taxes, a move that has support on both sides of the aisle. The package could be attached as part of a bipartisan deal on a year-end government funding bill. 

The delay of these taxes would be a victory for industries, like medical device companies and health insurers, that have pushed against the taxes. Those groups are still pushing for full repeal eventually. ...

 

Key Differences in the House and Senate Tax Plans

Big Government: The Average Wait Time For Those Seeking Disability Pay Is Now 633 Days

From the Orange County Register: 

...Under Social Security, about 150 million workers are insured not only for old age benefits, but in the event they suffer a serious injury or illness that prevents them from working before retirement age. Currently, 8.7 million disabled workers get an average of $1,172 a month — barely enough to live on. 

But since 2010, Congress has squeezed the Social Security Administration’s operating budget, resulting in an 11 percent cut when accounting for inflation. The effect: staff reductions, a quintupling of hold times for telephone assistance, and a backlog in claims processing that has reached an all-time high. 

The agency has closed 65 of its field offices since 2010, including in Corona, Redlands and Barstow. Overall, California field staff is down 14 percent. 

For claimants in the pipeline, the delays are “devastating,” Lisa Ekman, an official with the Consortium for Citizens with Disabilities, a coalition of some 100 nonprofits, told a Congressional hearing in September. “Some become homeless. Some declare bankruptcy. And some die.” 

Social Security officials counted 10,002 people who died in FY 2017 while waiting for a hearing. Many more, without income, grew sicker. ...

 

Disability Claims and Appeals Delay

On Dec. 16, 2016, the Department of Labor (DOL) issued a final rule amending the claims and appeals requirements for plans providing disability benefits. The final rule was scheduled to apply to claims that are filed on or after Jan. 1, 2018. However, on Nov. 24, 2017, DOL delayed the final rule for 90 days—until April 1, 2018.

The final rule provided disability claimants with protections that are similar, but not identical to, those under the Affordable Care Act (ACA) for non-grandfathered group health plans. While not affecting the timing for responding to disability claims and appeals, the final rule provided further protections for disability claimants regarding conflicts of interest, the opportunity to respond to evidence, and the reasoning behind the benefit decision.

According to DOL, after the final rule was published, concerns were raised that its new requirements will impair workers’ access to these benefits by driving up costs.

The delay in the effective date did not change the December 11, 2017 deadline for submitting comments, data and information to DOL regarding the merits of rescinding, modifying or retaining the final rule. DOL believes the 90 day delay allows it sufficient time to complete the comment solicitation process, perform a reexamination of the information and data submitted, and take appropriate next steps. DOL did not rule out a further extension if it received reliable data and information that reasonably supported assertions that the final rule will lead to unwarranted cost increases and related diminution in disability coverage benefits.

Sponsors of plans that provide benefits for disability, including retirement plans, should continue to monitor the status of the final rule. The final rule, and any modifications to the final rule, may require an update of not only internal procedures but also plans documents, summary plan descriptions as well as all forms and letters used in the claims and appeals process.

Our Legislative Alert provides more detail on the delay in the effective date of the final rule as well as the requirements of the final rule as currently constituted.

  

Are You Ready for Obamacare's Employer Penalties?

From Accounting Today: 

The IRS has been sending signals since the summer that it will be enforcing the Affordable Care Act's employer mandate. 

Those signals have culminated in the IRS starting the process of sending letters to businesses with 50 or more full-time or full-time equivalent employees—referred to as Applicable Large Employers, or ALEs—on what they owe for failing to comply with the Affordable Care Act’s employer shared responsibility mandate for IRS filings related to the 2015 tax year. 

Letter 226J is the communication that provides the general procedures the IRS will use to propose and assess the ACA’s employer shared responsibility payment, or ESRP. Click here to see the sample letter on the IRS website. 

There have been reports of letters containing ACA penalties anywhere from the tens of thousands of dollars to nearly $6 million. Surely some are even higher. More are on the way. 

CPAs need to move now to prepare their clients for the possibility that they will receive their own Letter 226J. 

Letter 226J provides information on the individual employees who, for at least one month in the year, were full-time employees, were allowed a premium tax credit, and for whom the ALE did not qualify for an affordability safe harbor or other relief, as per instructions for Forms 1094-C and 1095-C, Line 16. It also provides the indicator codes for the ALE, reported on lines 14 and 16, of each assessable full-time employee’s Form 1095-C. ... 

Full story here. 
 
Resources:

• Sample IRS Letter 226J
• Text of IRS Form 14764: ESRP Response (PDF)
• Text of IRS Form 14765: Employee Premium Tax Credit (PTC) Listing (PDF)
• Legislative Alert: IRS Issues Pay of Play Enforcement Guidance
• IRS Questions and Answers

  

71% of California's Healthcare is Paid by Taxpayers

Obamacare achieved its goal.  71% of California's healthcare is now funded by taxpayers. It's hard to see how this reverses without some form of massive collapse or calamity.  

A Sign of the Times - Most Want More Government

Average Rate Hikes in California

Yeah, that's sustainable. From California Healthline: 

Molina Healthcare has the highest rate increase for 2018, at 44.7 percent. Valley Health Plan is lowest at 9.8 percent. 

Blue Shield of California, the largest insurer in Covered California by enrollment, fell in between with an average hike of 22.8 percent. HMO giant Kaiser Permanente will charge 11.6 percent more on average next year. (Kaiser Health News, which produces California Healthline, is not affiliated with Kaiser Permanente.) 

10 Ways Employees Can Make Themselves Ineligible for HSA Contributions

A great reminder during open enrollment season from HR Daily Advisor:  

The Top 10 List 

Without further delay, here is the Top 10 list of HSA disqualifications: 

1. General-purpose health flexible savings account (FSA) or health reimbursement arrangement. This is among the most common disqualifications. It’s not that the employee’s employer allowed them in the general-purpose account, which reimburses any and all medical care expenses. These days employers will set up eligibility rules that only allow HSA-eligible employees in a limited purpose (dental, vision, preventive care only) or post-deductible health FSA or HRA (or a combination of the two). Instead, it is the employee’s spouse or domestic partner who has a general-purpose health FSA that covers the employee. It does not matter if the employee’s expenses are never reimbursed from the spouse’s general-purpose health FSA. That coverage is a disqualifier.

1. Medicaid. Medicaid coverage is first-dollar medical coverage for low-income individuals. It is generally a payer of last resort, such that a low-paid new hire still might qualify for Medicaid and be eligible for employer-sponsored coverage. The HSA rules do not provide an exception for Medicaid.

1. Medicare. Medicare enrollment, not eligibility, disqualifies a person from HSA contributions, starting on the first of the month in which Medicare begins. Age-based, disability-based, and end-stage renal disease-based Medicare all make one HSA ineligible. One rule often catches retirees by surprise. If someone retires within 6 months after reaching age 65, Medicare enrollment is retroactively effective to the first day of the birthday month. This means several months of HSA contributions could be reclassified as HSA-ineligible months.

1. Indian Health Service (IHS) and U.S. Department of Veterans Affairs (VA) coverage. These two benefits have a lot in common when it comes to HSA eligibility. For one thing, IHS and VA coverage is based on your status (tribe membership and military service, respectively); they are not based on any type of election. Eligible individuals have this coverage whether they use it or not. Recognizing this fact, an individual can have either type of coverage and be HSA-eligible as long as they have not received care from IHS or received any VA benefits in the prior 3 months.

There are exceptions. For IHS benefits, if an individual receives dental, vision, or preventive care—even in the prior 3 months—he or she is still HSA-eligible. 

5. TRICARE. This coverage pays benefits before the HDHP deductible is met and clearly makes one ineligible for HSA contributions. TRICARE coverage is available to active duty military personnel, including members of the Coast Guard, retired military veterans, their families, and survivors. TRICARE’s effect on HSAs is especially important to communicate for employers that hire veterans in large numbers.

5. On-site medical clinics. This type of coverage is appealing to employers with large populations at one or more work locations. Time off can be minimized when the healthcare provider is on premises. However, clinics can jeopardize HSA eligibility, unless they do not provide significant benefits in the nature of medical care. The challenge is that the term has not been fully defined.

IRS confirmed that these services are insignificant for HSA eligibility purposes: 

• Physicals

• Immunizations

• Antigen injections/allergy shots

• Aspirin and other over-the-counter pain relievers

• Medical care resulting from workplace accidents

On the other hand, a hospital charging less than fair market value for a wide range of medical services will be deemed to be operating an on-site clinic that makes its employees HSA-ineligible.Between those two ends of the spectrum is a gray area. The safe route is to charge participants in an HSA-eligible HDHP the fair market value (FMV) of services that are not included in the above list. 

7. Telemedicine. This add-on service (also known as telehealth) has increased in popularity, particularly with employers in rural worksites where access to care may be limited. The standard telehealth offering is charged at simple copay and can be used for a lot of different medical treatments and diagnoses, including the issuance of prescription drugs. It is hard to argue that this is not a significant benefit in the nature of medical care, especially when telehealth is promoted as having a significant impact on medical plan costs.

Unfortunately, the IRS has not officially carved out a specific HSA exception for telehealth. So, the prevailing wisdom is to borrow some wood from a neighbor’s wood pile, so to speak. That neighbor is the on-site medical clinic. As long as the telehealth benefit charges HSA participants FMV for its services, the benefit should allow for continued HSA eligibility. We have seen FMV estimates in the range of $40 to $50 per visit. 

8. Mini-med coverage. Mini-med plans became popular with the Affordable Care Act (ACA) individual mandate that took effect in 2014. The idea was that employers with a good many part-time employees might want to provide some level of basic coverage that would be more affordable than what they could obtain on the health insurance marketplace. The IRS said that mini-med plans invariably do not mix with HSA eligibility, particularly if they provide fixed-amount payments for office visits, outpatient treatment, or ambulance use. Bottom line: mini-meds are not HDHPs, and an individual must have an HDHP to be HSA-eligible.

8. Incentivized HDHP coverage. Here is a riddle: when is an HDHP not an HDHP? The answer is when an employer can receive some type of incentive during the plan year that changes a fundamental characteristic of the HDHP. Here are two examples:

• Wellness incentives. An employer offers a series of wellness incentives to participants in any of the medical plan options, including an HDHP. One incentive is a tobacco surcharge that adds to the employee contribution if an employee uses tobacco and does not satisfy the reasonable alternative standard. Another wellness incentive provides reduced cost-sharing (it could be in the form of a number of waived copayments or a deductible reduction) for completing several participatory wellness incentives.

• Health insurance marketplace cost-sharing reductions. If someone enrolls in marketplace coverage, chances are they will qualify for some type of subsidy that eases the burden of out-of-pocket medical expenses. Based on household income, about five in six marketplace participants qualify for a premium reduction. There are no HSA issues there. However, about three in five marketplace participants also qualify for cost-sharing reductions.

In both cases, the adjustments to cost-sharing can result in either payment of medical care benefits before the deductible has been met or a decrease in deductible below the statutory minimum annual deductible ($1,350 (self-only)/$2,700 (family) in 2018). 

10. Business travel accident (BTA) insurance. This is not among the “usual suspects” when it comes to making an individual ineligible for HSA contributions. That is because accident coverage is one of the listed benefits in the category of permitted coverage. A typical BTA policy will cover a certain amount of medical care expenses related to an accident while engaged in business travel. But beware: There are still policies that may provide additional medical coverage beyond what is accident-related, especially if the BTA policy is primarily designed for international travelers. If medical care is not tied to an accident, it is incompatible with HSA eligibility.

This could have been a Top 11 List. One disqualifier that did not make the cut is student health insurance. It typically provides coverage before the deductible is met. However, this is rarely a concern. Individuals who can be claimed as a tax dependent on someone else’s tax return are already HSA-ineligible. ...

Provisions in the House Republicans’ Tax Proposal Affecting Employee Benefits

From Nixon Peabody:

Provisions in the House Republicans’ tax proposal affecting employee benefits, which generally would become effective January 1, 2018, include the following:

• The provision allowing employers to provide employees up to $5,250 of tax-free educational assistance would be repealed, and such benefits would become taxable.
• Qualified tuition reduction benefits provided by educational institutions to their employees and their employees’ spouses and dependents would become taxable
• Employer contributions to an Archer MSA would not be excluded from income.
• The tax exclusion for certain employee achievement awards would be repealed and the value of such benefits would be taxable to the employee and deductible by the employer.
• The exclusion for housing provided for the convenience of the employer and for employees of educational institutions would be limited and phased out for highly compensated individuals.
• The tax exclusion for employer-provided dependent care assistance programs would be repealed.
• The exclusion for employer-paid qualified moving expenses would be repealed.
• Employees will be taxed on benefits provided under an employer- sponsored adoption assistance program.
• The limits on employee pre-tax elective contributions to 401(k) plans would not change, but there would be a modest relaxation to some 401(k) plan rules. For example, employees taking hardship distributions would be permitted to continue making contributions to the plan. Additionally, hardship distributions could be made from employer contributions and investment earnings. Finally, employees whose plan terminates or who separate from employment while they have plan loans outstanding would have until the due date for filing their tax return for that year to contribute the loan balance to an IRA in order to avoid the loan being taxed as a distribution.
• Frozen qualified defined benefit retirement plans would be given some relief to more easily pass nondiscrimination testing.

Legislative Alert: IRS Pay or Play Enforcement Guidance

IRS Reverses Policy on Certifying Individual Mandate Compliance - No Response No Longer an Option

Overview

The Internal Revenue Service (IRS) recently reversed a recent policy in how it monitors compliance with the Affordable Care Act’s (ACA) individual mandate. For the upcoming 2018 filing season (filing 2017 tax returns):

• The IRS‎ will not accept electronically filed tax returns where the taxpayer does not certify whether the individual had health insurance for the year (as it did last year); and
• Paper returns that do not certify compliance with the individual mandate may be suspended pending receipt of additional information, and any refunds due may be delayed.

The Individual Mandate

The ACA’s individual mandate took effect in 2014.  It requires most individuals to obtain acceptable health insurance coverage for themselves and their family members or pay a penalty.

The individual mandate is enforced each year on individual federal tax returns. Starting in 2015, individuals filing a tax return for the previous tax year indicated, by checking a box on their individual tax returns, which members of their family (including themselves) had health insurance coverage for the year (or qualified for an exemption from the individual mandate). Based on this information, the IRS will then assess a penalty for each nonexempt family member without coverage.

Previous Policy on “Silent Returns” 

Effective Feb. 6, 2017, the IRS announced that it would not automatically reject individual tax returns that did not provide this health insurance coverage information for 2016 (known as “silent returns”). Instead, silent returns would still be accepted and processed by the IRS.

This enforcement policy was intended to reduce the burden on taxpayers, including those who are expecting a tax refund. The IRS noted that taxpayers filing silent returns could still receive follow-up questions and correspondence from the IRS at a future date. 

Change in Enforcement Policy

The IRS recently reversed its previous enforcement policy on silent returns. As a result, the IRS will not accept any silent returns for the 2017 tax year that are filed electronically. In addition, any silent returns that are filed on paper may be suspended pending receipt of additional information, and any refunds due may be delayed.

Therefore, taxpayers should indicate on their 2017 tax returns whether they (and everyone in their family):

• Had health coverage for the year; 
• Qualified for an exemption from the individual mandate; or 
• Will pay an individual mandate penalty. 

The 2018 filing season will be the first time the IRS will not accept tax returns that omit this health coverage information. The IRS reiterated that taxpayers remain obligated to follow the law and pay what they may owe at the point of filing‎. According to the IRS, identifying omissions and requiring taxpayers to provide health coverage information at the point of filing makes it easier for the taxpayer to successfully file a tax return and minimizes related refund delays. 

  

The move is likely to "set up a battle between Trump and a government agency headed by an Obama appointee, John Koskinen. According to CNBC, 'This hurts Trump's efforts to gut Obamacare, but still gives the White House the perfect opponent in the unpopular IRS.'" 

  

GOP Releases New Tax Platform: More Class Warfare, More Redistribution & Greater Reliance on Fewer Americans to Foot the Bill

There certainly are some improvements in this plan but it really reminds me of the whole healthcare situation.  It's been watered down immensely from what was originally promised as it is nowhere near a revolutionary cut.  Instead, it does offer some quality cuts for folks making less than about $80,000 a year.  But on the whole, our tax code will continue to be overly complicated and chock full of loopholes and nuances designed to pick some winners and losers while funneling far too much money through Washington D.C.  Here is a smattering of some of the bad news from quality publications. 

From the Wall Street Journal:

The dispiriting news is on the individual side. The House would double the standard deduction to $12,000 for individuals and $24,000 for married couples. This would improve simplicity for millions, and it compensates for the bill’s elimination of the personal exemption. But nearly half of American filers already owe no income taxes, and the larger deduction would make the federal fisc even more dependent on a smaller pool of taxpayers. 

This is far better than the House bill’s new “family credit,” which increases the child credit to $1,600 from $1,000 in a forlorn attempt to appease the income redistributionists of the right like Senators Mike Lee and Marco Rubio. The credit would also offer an additional $300 for each parent and another $300 for each “non-child dependent.” The credits would phase out for married couples at $230,000 of income. Does anyone think a mid-level manager at J.P. Morgan deserves a subsidy to raise children? 

The House also gradually makes more of the $1,600 credit refundable. In other words, this will be a check in the mail for those who owe nothing in taxes, which discourages work. The family credits cost $640 billion over 10 years in lost revenue with zero growth payoff. To make up the difference, the House keeps the top personal rate at 39.6%, on top of the 3.8% ObamaCare surcharge that Republicans failed to repeal. This would become the fourth tax bracket and kick in at $1 million for couples—half that for individuals—with 12%, 25% and 35% brackets below. 

This top rate is a surrender to Democratic class warriors, though Republicans also fear that President Trump would sandbag them. No Members want to vote for a lower top rate and then have Mr. Trump tweet that they’re “mean,” as he did on health care. This is where presidential flightiness and lack of principle have a policy cost. Ideological surrender also gets Republicans nothing politically as Democrats are still attacking the House plan as a sop to the rich....  

The overall impact of the individual tax changes is little reform but more income redistribution. The long-term damage to the tax-cutting cause will also be considerable. Adding credits and deductions for individuals makes rate-cutting that much harder since the affluent pay the vast bulk of all income taxes. The divorce of “pass through” and personal income rates will also make it even harder to reduce individual tax rates below 39.6%—ever.

From Rand Paul via LifeZette: 

"For the individuals, it's not as good as I would like. I would like to see every individual up and down get a lower rate, and particularly on the top part of the spectrum because the top part of the spectrum pays most of the taxes," Paul continued. 

But the Democrats have been particularly effective in pushing the narrative that tax breaks for the wealthiest Americans disadvantage poorer Americans, and many Republicans have found themselves convinced by portions of these emotional arguments, Paul suggested. 

"We have to understand that the owners of our businesses — the people we work for — are richer than us. They pay more taxes," Paul said. "But if you lower their taxes, they will either buy stuff or hire more people. If you raise their taxes, it goes into the nonproductive economy, which is Washington, D.C., and it will be squandered." 

"So really, even if rich people get a tax cut, we should all stand up and cheer because it means more jobs for us because you're leaving more money in the private sector," Paul continued. "So I'm one of the few that will stand up on TV and say everybody's taxes should go down, including the wealthy."

And The GOP’s hidden 46% tax bracket from Politico:

House Republicans claim the tax plan they introduced Thursday keeps the top individual rate unchanged at 39.6 percent—the level at which it’s been capped for much of the past quarter-century. But a little-noticed provision effectively creates a new band in which income is taxed at over 45 percent.

Thanks to a quirky proposed surcharge, Americans who earn more than $1 million in taxable income would trigger an extra 6 percent tax on the next $200,000 they earn—a complicated change that effectively creates a new, unannounced tax bracket of 45.6 percent.

It hasn’t been advertised by Republicans, who have described their plan as maintaining the current top tax rate of 39.6 percent. And it goes against decades of GOP orthodoxy that raising taxes on the rich discourages work and reduces economic growth. Reached by phone, Steve Moore, a tax expert at The Heritage Foundation, said the surcharge was news to him. “I was just in a briefing with the White House on this,” he said. “They didn’t mention that. It seems kind of bizarre to me.” ...

New California Law Prohibits Asking Job Applicants About Their Salary History

From BakerHostetler LLP: 

A new California law (AB 168) was signed by Governor Jerry Brown on October 12, 2017 that prohibits employers from inquiring about the salary histories of its job applicants. AB 168, which takes effect on January 1, 2018, and applies to all California employers (including state and local governments) represents an expansion of California’s fight against the gender wage gap. Gender wage discrimination is already unlawful in California, but AB 168 goes a step further by banning salary history inquiries in most circumstances. 

The Law 

AB 168 specifically provides for the following: 

• Employers cannot seek salary history information (including compensation and benefits) for job applicants, whether it be done orally or in writing, or personally or through an agent. 
• An employer cannot rely on the salary history information of a job applicant as a factor in determining both (1) whether to offer employment to the applicant or (2) what salary to offer the applicant.
• Upon reasonable request, an employer must provide the pay scale for the job position to the job applicant.

Limited Exceptions 

AB 168 provides certain limited exceptions. The law does not apply:

• To salary history information disclosable to the public pursuant to federal or state law, including the California Public Records Act or the federal Freedom of Information Act.
• If the job applicant “voluntarily and without prompting” discloses his or her salary history information to the prospective employer.

In the latter case, the employer still cannot consider salary history information in determining whether or not to the hire applicant, but can consider salary history information in determining the applicant’s salary (if it hires the applicant). It is important to remember, however, that prior salary cannot, by itself, justify any disparity in compensation under California Labor Code Section 1197.5.

 

The Rationale Behind Getting Employers out of HSA-Account Selection

Whenever installing HSAs I encourage my clients to allow employees to select their own banks and set up their own accounts. Yes, if the employer is funding the HSA this is a small amount of extra work in the setup process - but no more work than setting up a person's paycheck via direct deposit.

My logic is that we nor HR needs to hear the complaints about any particular administrator or bank if and when that institution falls short of customer expectations.  (Think of the current events around Wells Fargo.) HSAs are owned by the employee themselves. So why tell them where they need to bank and/or invest their money? It is not like an HRA or an FSA for which the employer has ultimate responsibility. And it is just one less possible vendor's mistakes for which we and HR must answer.

There is now a reasonable legal argument to employe that practice so as to minimize the employer’s risk. The below is not saying an employer can't solely select one bank to use.  However, there is a very solid and practical argument to make that when an employer does select one bank that employer is necessarily restricting where and how an employee can and cannot not invest his or her money.

Hence, it would not surprise me in the least if this ultimately gets challenged by a group of aggrieved employees with an aggressive attorney. I say this especially since some HSA investment institutions are incredibly limited in how one can invest their money. Some institutions, for example, have only four mutual funds from which to choose. Well, if your employer is telling an employee that the employee can only invest in one of four funds, isn't your employer necessarily restricting investment options in such a way as to potentially run afoul of the below rules?

Maybe, maybe not. But for those of you wishing to install HSAs the way I historically have, you now have a good legal argument that doing so is the better risk management decision for the employer.

From InsuranceNewsNet.com: 

... HSAs often have an investment account option that allows their owners to invest in mutual funds and other investment vehicles much like they would in a 401(k) plan, EBRI said.

Employers may be impacted by the final rule if they: 1) provide investment advice to their employees concerning HSAs, or 2) benefit from such advice being given to their employees (such as revenue sharing in connection with a specific HSA investment, or compensation for directing employees towards a particular HSA vendor).

HSA mutual fund options charge annual fees and also may charge separate fees to administer the account. This could result in possible conflicts of interest can arise, and trigger liability under the DOL rule.

In a new white paper, HSA Bank, a large administrator of HSA plans, described how the DOL rule can affect employers who contract with HSA services firms. Alternatively, health insurers that administer the employer's HSA-eligible high-deductible health plan may contract with an HSA firm. In either case, the employer typically funds these accounts by transmitting employer contributions and workers’ own salary deferred dollars to the HSA administrator.

"Employers may be impacted by the [DOL's fiduciary] rule if they provide information to their employees about HSAs that crosses the line from general investment education to investment advice, or if they benefit in some way from the advice being given," said Kevin Robertson, a senior vice president at HSA Bank and the white paper's author, told SHRM. ...

7th Circuit Federal Court of Appeals Rules ADA does not Require "Extended" Leave - But 9th Circuit Still Does

Extended Leave and the ADA

The Americans with Disabilities Act (ADA) requires that employers provide “reasonable accommodations” for employees with disabilities unless the employer can demonstrate that an accommodation would cause undue hardship. The EEOC has argued that extended leave can be a reasonable accommodation and has brought suit where employers have a policy of automatically terminating employees after a specified period of leave. The EEOC also identifies leave as a potential accommodation in its regulations and enforcement guidance. This reasonable accommodation under the ADA, in the EEOC’s view, is in addition to an employee’s right to leave under the Family and Medical Leave Act (FMLA).

Severson v. Heartland Woodcraft

Our Legislative Alert covers a recent decision out of the U.S. Court of Appeals for the Seventh Circuit which disagreed with the EEOC’s position. In Severson v. Heartland Woodcraft, Seventh Circuit ruled that extended leave is not required under the ADA. The Court reasoned that the ADA was a statute that prevented discrimination and not one that mandated leave like the FMLA. The Court concluded that an ADA reasonable accommodation “is one that allows the disabled employee to ‘perform the essential functions of the employment position’” and that “not working is not a means” to that end. Therefore, in the Seventh Circuit’s view, a two to three month period of leave is not a reasonable accommodation under the ADA. The Court, however, noted that briefer or intermittent periods of leave, such as days or weeks, could be a reasonable accommodation under the ADA in some circumstances.

Takeaways

The Seventh Circuit’s decision only affects employers in Wisconsin, Indiana and Illinois. Employers subject to the ADA in other states should be aware that other federal court decisions may apply to them. For example, the U.S. Courts of Appeals for the First and Ninth Circuits have issued decisions holding that multi-month leave periods were reasonable accommodations under the ADA. 

As mentioned, the EEOC’s position is that extended leave can be a reasonable accommodation. Employers outside of the Seventh Circuit that are subject to the ADA should review federal court decisions regarding reasonable accommodations that apply in their states and confer with their legal counsel especially if they automatically terminate employees after a specified period of leave.

Our legislative alert provides an overview, action steps and considerations for employers as well as the background of Severson v. Heartland Woodcraft.

5 Ways to Keep Your Healthcare Costs Down

88% of Patients Who Sought a 2nd Medical Opinion for a Complex Condition Had a New or Refined Diagnosis & Treatment Plan

Whenever your diagnosis is anything beyond a minor matter, it pays to get a second opinion. 

From Employee Benefit News:

When an employee faces a serious health problem or is told he or she needs surgery, seeking a second opinion from another physician can, in some cases, have a significant impact on their diagnosis, treatment plan or prognosis.
But too few patients seek second opinions, and it’s causing issues for both employees and employers. 

A Gallup poll found that 49% of the 5,000 survey respondents said they never seek a second opinion when their physician diagnoses a condition, prescribes a new medication or treatment, or recommends surgery. Not seeking a second opinion in the case of a serious, complex, or rare diagnosis or recommendation for elective surgery is a missed opportunity to lower the risk of misdiagnosis and inappropriate or ineffective treatment. 

A recent study by health policy researchers at the Mayo Clinic found that as many as 88% of those who sought a second opinion for a complex medical condition at the Mayo Clinic had a new or refined diagnosis that changed their treatment plan. In contrast, only 12% of those patients received confirmation that their diagnosis was correct and complete. 

In addition to the harm caused to patients by misdiagnoses that may have been avoided if a second opinion was sought, there’s also a financial impact. The Institute of Medicine reports that approximately $750 billion is wasted each year in the U.S. on unnecessary medical services and other inefficiencies. Employers also bear the impact in the form of the absence or loss of experienced employees, lowered productivity, and increased insurance payouts. ...

   

Premiums in Obamacare Exchanges Now Up 10% to 20% More After Administration Ends Unlawful Insurance Bailouts/Subsidies

PPACA creates two different primary mechanisms to redistribute taxpayer dollars to insurers and enrollees to reduce the cost of insurance for Exchange enrollees.  As Josh Blackman describes over at Cato:

[W]hile the ACA funds the subsidies under Section 1401 with a permanent appropriation, to date, Congress has not provided an annual appropriation for the cost-sharing subsidies under Section 1402. Once again, where Congress would not act, President Obama did so unilaterally. The executive branch pretended that the ACA had actually funded Section 1402 all along, and it paid billions of dollars to insurers. Once again, Mr. Trump is exactly right that this is a “BAILOUT.” And, once again, the payments are a violation of the separation of powers. 

Last year, a federal court ruled that Congress did not “squeeze the elephant of Section 1402 reimbursements into the mousehole of Section 1401.” Mr. Obama’s policy “violates the Constitution,” the court concluded. “Congress is the only source for such an appropriation, and no public money can be spent without one.” 

This case, brought by the House of Representatives, now hovers in a state of limbo. The Trump Justice Department has not yet signaled whether it would continue the appeal begun by its predecessor. If the government is serious about repudiating pen-and-phone governance, it should announce that the payments are illegal and drop the appeal. This decision will no doubt trigger litigation by ACA supporters, but the far more obvious choice rests with the elected branch.

Yesterday, President Trump announced that he was stopping those cost-sharing subsidy payments.  This hastens the demise of the ACA Exchanges by further elevating premiums for those enrollees selecting Silver plans in the Exchanges by 10% to 20% more  (above and beyond the 12% to 60% premium increases already slated) in 2018.

In California, for example, Exchange plans were to increase by 12.5% in 2018, without these additional payments to reduce the cost of Silver plans (the most common Exchange plan, where about 60% of enrollees end up) will go up 25% instead.

In Idaho, Silver plans were to increase by 20%.  This change will elevate those plans now by 40%.

Other states are much worse off.  Georgia, with rates that are 57% higher than last year, tops the list.  While many of Florida's premiums will be 45% higher in 2018.  And these increases are before yesterday's announcement that the cost-sharing subsidies will be eliminated meaning Florida and George enrollees can safely tack another 10% to 20% onto the cost of their Silver Plans in 2018.

This impacts families making between 135% (or 100% in states that didn't expand Medicaid) and 250% of the federal poverty level (FPL) as only those families making 250% or less of FPL were eligible for these subsidies.  Some estimates peg that as high as half or more all Exchange enrollees even though this only impacts Silver Plans. Only Silver Plans qualify for these extra cost sharing reduction subsidies under Section 1402.

This means that in the Exchanges, families of four making approximately $33,000 to $61,000 and couples making $22,000 to $40,000 will be impacted negatively.

Constitutionalists and fiscal hawks will undoubtedly applaud this decision as it eliminates one more form of redistribution under the ACA while adhering back to the separation of powers and ending an unlawful, unilateral, executive action made by the last administration.

However, proponents of the ACA and popular media have and will pan the move as being cold-hearted, mean-spirited and outside of the intent of PPACA by increasing the costs to the very Americans who can afford it least: those at the lower end of the pay scale; but just outside of the reach of Medicaid eligibility.

This is the equivalent of tossing one more grenade into the already beleaguered foxhole of Obamacare.  To the extent that this hastens real, practical, meaningful reforms to our health insurance markets, it will ultimately lead to insurance premium relief.  But doing this days before open enrollment and knowing it will likely mean that about $2 million fewer people will be able to afford healthcare is going to make this a public relations and political nightmare if our politicians can't come together to start to put real fixes in place in the next few months.

I was on the Armstrong and Getty Radio Program this morning discussing this topic. 

 

For more on that comment by Senator Ted Cruz regarding the doubling of insurer profit under Obamacare, see, "Insurers' Profits Have Nearly Doubled Since Obama Was Elected."

   

Administration and Congressional Leadership Release Tax Reform Plan

On Sept. 27, 2017, the Trump administration—in conjunction with Congressional leadership—released a tax reform plan designed to make significant changes to the federal tax code. This plan is intended to serve as a template for the Congressional tax writing committees that will develop tax reform legislation.

This tax reform plan was collectively developed by the Trump administration, the U.S. House of Representatives Committee on Ways and Means, and the U.S. Senate Committee on Finance. It includes only broad policy directives, with the expectation that Congress will provide more detail when drafting its tax reform legislation.

The tax reform plan would make significant changes for businesses and employees. For example, the tax plan would:

• Create a new lower tax rate structure for small businesses—The plan would limit the maximum tax rate for small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations to 25% from 40%. It also directs committees to adopt measures to prevent the recharacterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate.

• Lower the corporate tax rate—The plan would reduce the corporate tax rate from 35% to 20%, and would eliminate the corporate Alternative Minimum Tax (AMT), in an effort to make American corporations more competitive globally.

• Allow “expensing” of capital investments—The plan would allow businesses to immediately write off (or “expense”) the cost of new investments for at least five years.

• Repeal or restrict many existing business deductions and credits—Because the plan would substantially reduce the tax rate for all businesses, it would eliminate the existing domestic production (Section 199) deduction, and would repeal or restrict numerous other special exclusions and deductions. However, the plan explicitly preserves business credits related to research and development and low-income housing.  

The elimination of certain deductions — in favor of doubling the standard deduction (below) — could eventually cause taxes for many people to increase.  "By 2027, taxes would rise for roughly one-quarter of taxpayers, including nearly 30 percent of those with incomes between about $50,000 and $150,000 and 60 percent of those making between about $150,000 and $300,000," said a Tax Policy Center report.

• End “offshoring” incentives—The plan would end the incentive to offshore jobs and keep foreign profits overseas by exempting them when they are repatriated to the United States. It would impose a one-time, low tax rate on wealth that has already accumulated overseas so there is no tax incentive to keep the money offshore.

• Repealing the estate or death tax.

• Simplifying the individual tax rate structure to 12, 25, and 35%.  

• The other main tax cut in the plan is a doubling of the standard deduction, which would not do much for growth but would simplify the system.  

The tax reform plan provides broad flexibility to Congressional tax writing committees in implementing these changes, as well as establishing additional reforms, when drafting their legislation. As a result, it is unclear whether these reforms will be included in any future tax reform bill.

Two Republican Senators have already expressed negative sentiment over the proposal.  Senator Rand Paul of Kentucky became the second Republican senator to publicly express doubts about the plan. Sen. Bob Corker of Tennessee said Sunday that if it looked like the plan was "adding one penny to the deficit, I am not going to be for it."

We will continue to monitor the tax reform process for any future updates.

  

Compliance Update: Newly Adopted Wage Equity Laws

Highlights: 

• New York and Delaware amended current laws making salary history inquiries an unlawful discriminatory practice.  
• Oregon, Delaware, Massachusetts and San Francisco adopt new wage equity laws.
• A number of other states and major cities are considering similar laws.

Effective Dates: 

• October 1, 2017 - New York City and Oregon
• December 1, 2017 - Delaware
• July 1, 2018 - Massachusetts and San Francisco
• January 1, 2019 - Oregon (protected classes)

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Overview

In an effort to close the wage gap that exists between male and female employees, a number of states and major cities have recently adopted wage equity and salary history laws. According to the Bureau of Labor Statistics, in 2016, the average female employee earned 80 cents for every dollar a man received during the same period. Statistics suggest the gap may be even greater for ethnic or racial minority employees.

When applicable, employers must comply with their state and local laws in addition to the Federal Equal Pay Act. When both federal and local laws differ, the law that provides the greater protection or benefit to the employee applies.

Employer Action Steps

• Eliminate prohibited salary history inquiries.
• Update job applications and other employment forms to comply with pay equity laws.
• Train recruiters and hiring managers regarding applicable pay equity laws.

State Laws
New York City Effective date: Oct. 1, 2017	An amendment to the New York City Human Rights Law prohibits employers from inquiring into a candidate’s salary history as an unlawful discriminatory practice. Covered Employers: New York City employers and employment agencies with four or more employees. Individuals employed by a parent, spouse or child, and individuals engaged in domestic service are not considered employees under this amendment. Covered Individuals: Candidates and new hires during the hiring process, except internal transfers or promotions, when public employees’ salaries are determined by collective bargaining or when disclosure of salary history is mandated by law. Requirements: A covered employer is prohibited from inquiring about or relying on a candidate’s salary history when determining a salary offer.
Oregon Effective dates: Salary inquiries Oct. 1, 2017 Protected classes and posting requirements    Jan. 1, 2019	In addition to prohibiting salary history inquiries, the Oregon Equal Pay Act of 2017 extends pay equity protections to nine additional protected classes. Covered Employers: All Oregon employers. Covered Individuals: All Oregon job applicants. Requirements: Effective Oct. 1, 2017, employers are prohibited from inquiring about an applicant’s salary history. Effective Jan. 1, 2019, employees who perform comparable work cannot be paid different pay rates based on race, color, religion, sex, sexual orientation, national origin, marital status, veteran status, disability or age.
Delaware Effective date: Dec. 1, 2017	An amendment to Title 19 of the Delaware Code prohibits employers from asking a candidate’s compensation history during the interview process. Covered Employers: All Delaware employers and hiring agencies. Covered Individuals: All Delaware job candidates. Requirements: Employers are prohibited from making inquiries concerning a candidate’s compensation history, using that history to screen candidates or requiring that prior compensation satisfy minimum or maximum criteria.
Massachusetts Effective date: July 1, 2018	The Pay Equity Act addresses equal pay for comparable work, allowable variations in wages, pay secrecy policies and using salary history in the hiring process. Covered Employers: All Massachusetts employers. Covered Individuals: All Massachusetts employees and candidates. Requirements: Employers are prohibited from inquiring about or relying on a candidate’s salary history during the hiring process.

San Francisco Effective date: July 1, 2018

The Parity in Pay Ordinance prohibits employers from making inquiries concerning a job applicant’s salary history. Covered Employers: San Francisco employers, those contracting with the city and their agents. Covered Individuals: All job applicants, including temporary or seasonal workers. Requirements: Employers are prohibited from asking an applicant’s salary history. Salary history may not be considered in the hiring process or when determining a salary offer. Employers are prohibited from disclosing a current or former employee’s salary history without prior authorization, unless the information is publicly available.

Applicable Federal Laws

In addition to the state and local laws mentioned above, employers should be aware of the following federal laws that regulate employment discrimination and other aspects of the hiring and employment processes.

Equal Pay Act	The Equal Pay Act (EPA) requires that men and women receive equal pay for equal work. Covered Employers and Employees: Virtually all employers and employees. Requirements: Employers are required to pay equal pay for equal work, regardless of gender. Men and woman in substantially equal jobs, those requiring equal skill, effort, and responsibility and performed under similar conditions at the same workplace, must be paid equally.
Title VII, ADEA, ADA	Title VII, the Age Discrimination in Employment Act (ADEA) and the Americans with Disabilities Act (ADA) prohibit compensation discrimination based on race, color, religion, sex, national origin, age or disability. There is no requirement that the jobs be substantially equal. Covered Employers and Employees: Title VII and ADA, all employers with 15 or more employees. ADEA, all employers with 20 or more employees.
Executive Order 11246	Executive Order 11246 prohibits discrimination in employment decisions based on race, color, religion, sex, sexual orientation, gender identity or national origin. Covered Employers and Employees: Federal contractors and federally assisted construction contractors and subcontractors, who do over $10,000 in government business in one year.

This Compliance Bulletin is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.  Published with permission for use by clients of BB&T of California. 

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