Category Archives: PATIENT PROTECTION AND AFFORDABLE CARE ACT
By Stacie Clifford Kitts, CPA
Okay so earlier this week I talked about the passing of HR 3590 aka the Patient Protection and Affordable Care Act which is now a law known as P.L. 111-148.
However, the new law was amended yesterday by the passing of HR 4872 aka the Health Care and Education Reconciliation ACT. This new bill is on its way to the president’s desk for approval.
As the Journal of Accountancy points out, this new bill adds stuff that was not built-in to the Patient Protection Act.
If you need to get up to speed, you can check out my previous post which outlines the original tax provision here Outline of Health Care Act – Tax Provisions of HR 3590.
The following is a list of things that were changed or added. For a complete analysis, check out the J of A’s article.
- Premium Assistance Credit – Updated
- Excise Tax on Uninsured Individuals – Updated
- Adult Dependent – Updated
- Excise Tax on High Cost Employer-Sponsored Coverage Updated
- Medicare Tax on Investment Income ( I thought this one might be of particular interest to taxpayers so I have included the J of A’s analysis here- my take, this provision is likely to tick some folks off)
The Reconciliation Act added a new IRC § 1411 that imposes a tax on individuals equal to 3.8% of the lesser of the individual’s net investment income for the year or the amount the individual’s modified adjusted gross income exceeds a threshold amount. For estates and trusts, the tax equals 3.8% of the lesser of undistributed net investment income or adjusted gross income over the dollar amount at which the highest trust and estate tax bracket begins.
For married individuals filing a joint return and surviving spouses, the threshold amount is $250,000; for married taxpayers filing separately, it is $125,000; and for other individuals it is $200,000.
Net investment income is defined as income from interest, dividends, annuities, royalties and rents, other than such income derived in the ordinary course of a trade or business (however, income from passive activities and from a trade or business of trading in financial instruments or commodities is included in the definition of net investment income).
This provision applies to tax years beginning after Dec. 31, 2012.
- Economic Substance Doctrine – New
Here is a calendar of dates related to the Act to know:
|Dates to follow|
|January 1, 2010||Small Business Tax Credit – For tax Years Beginning on or after 1/1/10|
|July 1, 2010||Tax on Indoor Tanning Services – For services on or after 7/1/2010|
|January 1, 2011||Tax on HSA Distributions – For tax years beginning on or after 1/1/2011|
|January 1, 2011||SIMPLE Cafeteria Plans for Business – For tax years beginning on or after 1/1/11|
|January 1, 2011||Charitable Hospitals – For payments made on or after 1/1/2011|
|January 1, 2012||Medicare tax on Investment Income – for tax years beginning on or after 1/1/2012|
|October 1, 2012||Fees on Health Plans – Beginning for plan years on or after 10/1/12|
|January 1, 2013||Medical Care Itemized Deductions Threshold -Beginning on 1/1/13|
|January 1, 2013||Additional Hospital Insurance Tax on High Income Taxpayers – For tax years beginning on or after 1/1/13|
|January 1, 2013||Flexible Spending Account – Tax years beginning on or after 1/1/13|
|January 1, 2014||Premium Assistance Credit – For years beginning on 1/1/14|
|January 1, 2014||Excise tax on Uninsured Individuals – Tax years beginning on or after 1/1/14,|
|January 1, 2014||Reporting Requirements – Beginning on 1/1/14|
|January 1, 2014||Cafeteria Plans – Starting 1/1/14|
|January 1, 2014||Employer Responsibility – Beginning on 1/1/14|
|January 1, 2018||Excise Tax on High-Cost Employer Plans – For tax years beginning on or after 1/1/18|
An Interesting Rewrite for the Vanity Tax H.R. 3590 Looks As if Congress Found a Vanity Product with Enough Sin to Justify a Tax
By Stacie Clifford Kitts, CPA
It is all over the news; the Dems have enough votes to push the Patient Protection and Affordable Care Act on ward. But what has been eliminated from the latest version of the bill has me wondering – was it – our stimulating online debate that finally killed the dreaded 5% booby tax (i.e. the cosmetic surgery tax). Hmmmm …okay so it was most likely the influential lobbying by the American Health Association who strongly opposed the tax that murdered it.
But you know what; I’m all a-glow just the same. Congress – it appears – has responded to my points from a previous post where I chastise our lawmakers for attempting to tax the sinless personal choice of cosmetic enhancements.
I can’t say that I am totally opposed to taxing
behavior. That is, I agree with sin taxes. Taxes on cigarettes and alcohol for
instance do provide a certain amount of good since these products have been
shown to cause harm to the public welfare. Likewise, the cost of treating people
who have made themselves sick by indulging in unhealthy activities or behaviors
must be considered – I get that – and if a tax on so called unhealthy products
helps to relieve the public burden, then so be it.
But is cosmetic surgery really
sinful? Personally, I fail to see how it is. Maybe our lawmakers can explain to
me how slimmer hips, larger breasts, or plumper lips harms the public welfare or
places a financial burden on the government.But what is even more perplexing is
just how or why cosmetic surgery won the tax lottery. I fear that this type of
legislation opens the door for a whole litany of WTF taxes. I mean why not tack
on an additional tax for hair coloring, nail salons, or makeup. These are also
vanity products. Frankly where does it stop?I am all for affordable health care,
balancing the budget, and reducing debt. But come on lawmakers, I find it hard
to believe that you can’t do better.
In response to my argument, it would appear that our lawmakers did find a vanity procedure that fits the sin criteria. The new vanity target – tanning salons. Here is a portion of the amended law:
SEC. 10907. EXCISE TAX ON INDOOR TANNING SERVICES IN LIEU OF ELECTIVE COSMETIC MEDICAL PROCEDURES.
(a) IN GENERAL.—The provisions of, and amendments made by, section 9017 of this Act are hereby deemed null, void, and of no effect.
(b) EXCISE TAX ON INDOOR TANNING SERVICES.—
Subtitle D of the Internal Revenue Code of 1986, as amended by this Act, is amended by adding at the end the following new chapter:
CHAPTER 49—COSMETIC SERVICES
Sec. 5000B. Imposition of tax on indoor tanning services.
SEC. 5000B. IMPOSITION OF TAX ON INDOOR TANNING SERVICES.
(a) IN GENERAL.—There is hereby imposed on any indoor tanning service a tax equal to 10 percent of the amount paid for such service (determined without regard to this section), whether paid by insurance or otherwise.
But what is even more telling is this tid bit found over at Kay Bell’s blog Don’t Mess with Taxes
“Congressional bean counters had estimated the Bo-Tax would bring in $5.8
billion over the next decade. The Tan Tax, which would go into effect next July,
is projected to produce $2.7 billion over 10 years.
But that loss of revenue is OK, because the new tax addresses health
Or as one anonymous aide put it, the tanning tax was added out of
“concern that use of these tanning beds creates a health problem with respect to cancer.”
Well, I guess I got what I wanted, a tax that benefits the public welfare and relieves the public burden by taxing those people who intentionally expose themselves to cancer causing tanning beds.
Geez, I sure do hope that smog doesn’t cause cancer otherwise our lawmakers might tack on an excise smog tax for my sinful choice to live in California and breathe in the foul air.
By Stacie Clifford Kitts, CPA
I just want to go briefly back to one point that was missed during my extensive commentary about the Vanity Tax.
You may have read a couple of posts I have written regarding my disapproval of this tax commonly known as the cosmetic surgery tax which is included in the Patient Protection and Affordable Care Act (HR 3590).
If you want to catch up, here are the links to the previous posts:
You might also recall that Mary O’Keeffe over at Bed buffaloes in your tax code wrote some good responses to my posts and even answered some of the questions posed in my ramblings.
The gist of my angst over this tax issue really arises from my query as to why it is that Cosmetic surgery won the tax lottery.
As I pointed out in previous posts:
The Patient Protection and Affordable Care Act has declared VANITY as the eighth
deadly sin punishable by the imposition of a 5%excise tax.
The bill, which apprises to seek affordable healthcare also imposes an additional tax on those people wishing to improve their appearance or self-esteem via cosmetic
So again, I ask, why did cosmetic surgery win the tax lottery, why not the treatment of acne? After all dermatologists went to medical school too, their education was also subsidized. The answer is clear, because taxing little pimple faced teenagers for their acne treatment would tick people off. It doesn’t matter that this procedure is also elective and even vanity driven. However, people who elect to have cosmetic surgery are perceived as vain, spoiled, overindulged, and sinful.
Mary also ponders on this question and in her post More on taxing cosmetic surgery, subsidies, and tax simplification She makes this observation.
Our existing tax code already makes a distinction between its treatment of
cosmetic surgery (which is not tax-deductible on Schedule A, nor is it eligible
for tax-excluded flexible spending account use) and treatment of acne (which is,
I believe, eligible for both tax breaks.) But you haven’t complained about that
distinction in existing tax law?
Well here is where I complain, thanks for the reminder:
Absent some brilliant legal argument regarding why acne treatments should or should not qualify for a tax deduction let me just put this out there where it belongs.
The distinction Mary mentions that includes acne treatments, as deductible vs. the non-deducibility of elective cosmetic procedures is in my opinion a clear example of the TAX THE OTHER GUY SYNDROME.
Consider this, the reshaping of one’s enormous nose may to have found its way to the tax-deductible pages of some legislation had that “problem” been a common issue for lawmakers. Had their children been unfortunate enough to be saddled with some enormous honker, then we might be talking about THE ENORMOUS NOSE REDUCTION ACT.
Why then can we deduct the cost of acne treatments?
The answer is as plain as the nose on my face, because our lawmakers and their children know the embarrassment and social stigma associated with acne. Acne is a universal and relatable vanity issue. Acne simply represents the “average guy.”
And what does the average guy do, he says, tax the other guy!
So then, what happens?
Well, we get the Patient Protection and Affordable Care Act which shoves its fist between the couch cushions of the OTHER GUY in search of loose change.
By Stacie Clifford Kitts, CPA
Mary O-Keeffe strikes back with another good argument in response to my post Still Talking About Fuller Lips, Larger Breasts, Slimmer Thighs, And H.R. 3590. In her post More on taxing cosmetic surgery, subsidies, and tax simplification Mary is certainly on target when she says:
“If we as taxpayers don’t want more taxes, then we as taxpayers also have
to send a clear signal to our politicians as to what we don’t want the
government to be spending our money on.”
Well Mary, I agree so here goes:
I would greatly appreciate your not spending $100 million to buy a vote.
If Louisiana needs the money, base it on that need, not on your need to win.
Also,are you really spending $1.15 million to put a guardrail around a dry lake
in Oklahoma? Because if you are, I would rather that my portion of the tax
coffer not be spent on that – please.
And what’s the deal with giving the SETI Institute $13.8 million in
2008? Did you know they spent $456,312 to search for “signs of intelligent
extraterrestrial life”? (Although that does sound kinda cool, I am
wondering, why can’t we wait until they find us? I mean, let them spend the
And If even half of the rest of what Senator Coburn said about your
spending habits is right, would you please knock off all of the other
shenanigans, too – The public can’t afford it AND their cosmetic surgery too!
I eagerly await your response.
Very truly yours,
Stacie Clifford Kitts, CPA
As Mary pointed out, the cost of “unnecessary” cosmetic surgery is not deductible for tax purposes and cannot be paid with pre-tax or what I’d call “tax efficient” dollars. And the proposed tax does not apply to otherwise deductible cosmetic surgery. So, yep, they do dictate behavior and have done so for quite awhile.
But that’s not the point.
The point is where does it stop? Yes, as Mary pointed out, they already started down this slippery slope, particularly with the [ab?]use of their taxing powers. Yes, the tax code is replete with behavior modifying incentives and disincentives. While this tax may be new, the concept on which it rests certainly is not. This “vanity” tax is merely an example of how far down the slope they’ve slipped.
So what’s next? Maybe congress will decide that having two bathrooms is unnecessary? So levy a tax or limit a deduction on anyone owning, renting, or squatting in a house with more than one?
How many cars per family are acceptable? Isn’t one enough? Why not charge an excise tax on each car purchased after the first?
Ok – so that’s a little dramatic. None of that is likely to happen – at least not before the next election.
So again I ask, why just cosmetic surgery?
Is it, as Mary argues, because it is unfair to subsidize “elective” surgery? Admittedly, I am not well read on medical education subsidies and the resulting economics. And if she is willing, she may help educate us all on the topic.
Remember, I’m pleading ignorance and despite that – or because of it – I’m not yet buying her argument.
First, I don’t understand how the doctor’s get a discount and second I don’t see the logic that explains how that discount gets to the public. From what I can find, most of the subsidies go to the teaching hospitals or schools. Doctors don’t directly benefit.
Oh, there is the “collateral benefit.”
Let’s consider – without the subsidies one of three things can happen: 1) the schools and hospitals can reduce training and research thereby eliminating the costs currently subsidized 2) the schools can raise tuition to compensate for the lost revenue or 3) they can collude with a combination of the two.
Well – less training and less research means lower quality. Lower quality generally means lower demand, which means poorer health. Poorer health raises the cost of taking care of sick people who shouldn’t be sick – and said cost are then being paid for by the public. This of course does not subsidize medical care. So why go there?
Ok, so subsidies result in lower medical school tuition (thus lowering the barrier to entry) which increases the supply of doctors. Supply pressure then pushes the price of the doc’s services down.
Okay, am I getting this yet?
Or, maybe subsidies result in lower tuition which means lower costs (and lower opportunity cost – threw that in for you economists) which means they can charge a lower fee and still make the same profit margin. This, in theory, means they charge less.
Is this what Mary means?
I suppose this is why I’m an accountant and not an economist ‘cause I know what really happens. Doc hires an accountant who says: “Raise your price as high as possible to accomplish one of two goals.
- 1) If you raise the price just right, you will maximize your profit margins without losing patients. So you will pocket more money even after my fees.
2) Or, you might lose a few patients (due to your price increase), while maintaining the same level of profit leaving more time to play golf or whatever docs do when they aren’t available.
So what does the doc do? She decides to maximize revenues because no matter the outcome she wins.
In reality – There is no subsidized discounts to the patient, just higher income or more time off for the doc.
Now let’s consider this -why not tax where the money really goes? That is levy the tax on the docs!
Look, assuming the doc has risen rates to accomplish the goals recommended by the accountant – which duh she has, the tax increases the cost to the patient means too much price pressure means lower demand means lower revenues means lower profits means doctor pockets less means accountant pockets less which really sucks!
Speaking of sucks – so does the “vanity tax” and all it represents.
By Stacie Clifford Kitts, CPA
Mary O-Keeffe over at Bed buffaloes in your tax code has responded to my post:
Her answer to my question is thoughtful and while I do agree with Mary’s point that there is some government subsidizing in the medical profession, I think her argument provides fodder for the slippery slope that this type of public policy inspires.
In my previous post, I say:
- “But what is even more perplexing is just how or why cosmetic surgery won the tax lottery. I fear that this type of legislation opens the door for a whole litany of WTF taxes. I mean why not tack on an additional tax for hair coloring, nail salons, or makeup. These are also vanity products. Frankly where does it stop?”
Mary’s answer is this:
- “The government provides large subsidies for the education of physicians. Yes,they do pay tuition, often taking out large loans to do so, but their tuition does not cover all the costs of their training. Government subsidies for medical education make up the difference. At the moment, people who purchase cosmetic surgery services are getting it at a discount thanks to the general public’s subsidies of their physicians’ training.”
Given the current economic state, and the need for our government to find revenue sources, I worry what source will be next.
Are we now to accept that any government subsidized product or profession is subject to this excise tax? If this is your position, then be wary, there are hundreds of thousands of government subsidies in all types and forms.
Tell me – are we now to explore the background of every product that we buy and determine if the government ever subsidized research or provided tax breaks? How soon do you think it will be before it becomes “public policy” to tax all of our choices, in products, or services, or lifestyle? Moreover, who gets to decide which items are wicked enough to be taxed first.
So again, I ask, why did cosmetic surgery win the tax lottery, why not the treatment of acne? After all dermatologists went to medical school too, their education was also subsidized. The answer is clear, because taxing little pimple faced teenagers for their acne treatment would tick people off. It doesn’t matter that this procedure is also elective and even vanity driven.
However, people who elect to have cosmetic surgery are perceived as vain, spoiled, overindulged, and sinful.
Do you see how letting our government tax our life choices even when those choices are not harmful to the public welfare creates a morality clause in our tax system by giving lawmakers the power to tax those items or services that they believe are wrong?
Let’s Talk Fuller Lips, Larger Breasts, Slimmer Thighs, and H.R. 3590 (Patient Protection and Affordable Care Act.)
By Stacie Clifford Kitts, CPA
I really don’t have anything against women or men for that matter, who want to make some appearance enhancements.
However, as it turns out, some politicians do.
Here is the reality, “average” folk seek out and pay for cosmetic surgery. The reasons why are probably as varied as the numerous cosmetic procedures available to anyone willing to go there. I suppose if you are interested enough, you can get a comprehensive list of reasons from your local therapist.
Nevertheless, I think you will be surprised to learn that you probably know someone who has gone under the knife. Frankly, I don’t know many women (over 35) who haven’t had something done, even if it’s just a little Botox around the eyes or the permanent removal of some unwanted hair.
However, regardless of a person’s reasons, vanity it seems, is something our lawmakers believe should be discouraged and even punished.
The Patient Protection and Affordable Care Act now in the Senate has declared VANITY as the eighth deadly sin punishable by the imposition of a 5% excise tax. The bill, now in its fourth draft was originally introduced in the House as the Service Members Home Ownership Tax Act of 2009 by a myriad of politicians. You can check out the first draft, which includes a list of those politicians here.
The bill, which apprises to seek affordable healthcare also imposes an additional tax on those people wishing to improve their appearance or self esteem via cosmetic surgery.
Of course, the current draft has some fairness weaved in for those needing reconstructive or corrective procedures. Here’s a taste of what we get:
- `(a) In General- There is hereby imposed on any cosmetic surgery and medical procedure a tax equal to 5 percent of the amount paid for such procedure (determined without regard to this section), whether paid by insurance or otherwise.
- `(b) Cosmetic Surgery and Medical Procedure- For purposes of this section, the term `cosmetic surgery and medical procedure’ means any cosmetic surgery (as defined in section 213(d)(9)(B)) or other similar procedure which–
- `(1) is performed by a licensed medical professional, and
- `(2) is not necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or disfiguring disease.
As a CPA and advisor, my first thought on the subject is just this, if after you have maxed out your retirement contributions, saved for a rainy day (at least 6 month salary set aside), figured out how you are going to meet your children’s needs including college, purchased adequate medical insurance, considered life insurance and other retirement arrangements, then it might be okay to check out a cosmetic enhancement – if that’s your thing.
Now assuming your procedure of choice is elective, let’s look at the tax cost under the provisions of the proposed “vanity tax.” Let’s assume that your choice is a new rack, which will cost you $10,000. The 5% tax on your new boobs would be an additional $500. Now from a realistic standpoint, and in my humble opinion, if you can’t scrape together an additional $500, then frankly you probably can’t afford the boobs and shouldn’t be getting them anyway.
But really – let’s put the “who can afford it” stuff aside and delve in. This provision actually falls under the WTF category – don’t you think?
I can’t say that I am totally opposed to taxing behavior. That is, I agree with sin taxes. Taxes on cigarettes and alcohol for instance do provide a certain amount of good since these products have been shown to cause harm to the public welfare. Likewise, the cost of treating people who have made themselves sick by indulging in unhealthy activities or behaviors must be considered – I get that – and if a tax on so called unhealthy products helps to relieve the public burden, then so be it.
But is cosmetic surgery really sinful? Personally, I fail to see how it is. Maybe our lawmakers can explain to me how slimmer hips, larger breasts, or plumper lips harms the public welfare or places a financial burden on the government.
But what is even more perplexing is just how or why cosmetic surgery won the tax lottery. I fear that this type of legislation opens the door for a whole litany of WTF taxes. I mean why not tack on an additional tax for hair coloring, nail salons, or makeup. These are also vanity products. Frankly where does it stop?
I am all for affordable health care, balancing the budget, and reducing debt. But come on lawmakers, I find it hard to believe that you can’t do better.
If you are interested in perusing the entire bill, you can find it here.