US Health: Care Legislation Contains Provisions Affecting International Assignees
On March 23, 2010 U.S. President Barack Obama signed the Patient Protection and Affordable Care Act1 (PPACA), the first of two pieces of health care reform legislation. On March 30, 2010 the President signed the Health Care and Education Reconciliation Act of 20102 (HCERA) which modifies the revenue provisions of PPACA. The two Acts together constitute the final health care reform legislation.
• Additional Hospital Insurance Tax on High Income Taxpayers - Unlike the 6.2% old age, survivors, and disability (OASDI) portion of FICA, the hospital insurance (Medicare) portion does not have a cap and thus applies to all covered wages. PPACA increases the employee portion of the Medicare tax (currently 1.45% of wages) by an additional 0.9% on wages exceeding a threshold amount. The threshold amount is $250,000 for married couples filing a joint return; $125,000 for married individuals filing separately; and $200,000 for single filers. This provision is effective for remuneration received, and tax years beginning, after December 31, 2012.
• Unearned Income Medicare Contribution - The FICA Medicare tax is currently imposed only on earned income (employee compensation or self employment income). HCERA adds a 3.8% Medicare tax on the lesser of net investment income or the excess of the taxpayer’s modified adjusted gross income over the taxpayer’s threshold amount. “Net investment income” includes capital gains, interest income, dividends, annuity income and, in some cases, rental income after deductions for expenses allocable to the income. The “threshold amount” is $250,000 for married couples filing a joint return, $200,000 for single filers, and $125,000 for filers who are married filing separately. The tax is effective for tax years beginning after December 31, 2012. This provision does not apply to nonresident aliens.
Modified Itemized Deduction for Medical Expenses - PPACA increases the threshold for the itemized deduction for unreimbursed medical expenses from 7.5% of AGI to 10% for regular income tax purposes. The change is effective for tax years beginning after December 31, 2012.
• Expansion of Adoption Credit and the Exclusion from Gross Income for Employer-Provided Adoption Assistance – PPACA provides that the adoption credit is increased and made refundable for 2010 and 2011. In addition, the exclusion for employer-provided adoption assistance is increased and extended one year until December 31, 2011. Both the credit and the exclusion are increased to a maximum of $13,170 per eligible child (indexed for inflation after 2010). In effect, the “sunset” provisions for both adoption benefits have been postponed by one year, so that the exclusion is now scheduled to expire in 2012, and the credit amount will drop to $6,000 for special needs adoptions and no tax credit for non-special needs adoptions in 2012. The change in the exclusion amount is effective for tax years beginning after December 31, 2009.
KPMG LLP (U.S.) has prepared a detailed report on the Health Care legislation as enacted. You may access the report at: http://www.us.kpmg.com/microsite/taxnewsflash/2010/Mar/Healthcare_Enactedv2.pdf