Spring 2018 issue of Horizons

There are additional healthcare-specific provisions associated with the Act. The resolution reached by the Senate and House in early 2018 to avoid government shutdown includes delaying the implementation of three healthcare taxes created by the ACA: ∙ The moratorium on the medical device excise tax is extended through 2019; if no further changes are made, the 2.3% tax will apply to sales of devices after December 31, 2019 ∙ The delay in the implementation of the excise tax on high cost employer- sponsored health coverage (Cadillac plans) is extended to the taxable year beginning after December 31, 2021 ∙ The suspension of the annual fee on certain for-profit health insurance providers is continued through December 31, 2019 As part of the government resolution, the federal funding was extended for the Children’s Health Insurance Plan (CHIP), which provides low-cost health coverage to children in families that earn too much money to qualify for Medicaid but not enough to buy private insurance. The extension covers the next six years (through fiscal year 2023). However, the ACA-enhanced federal match only continues through fiscal year 2019 and then is reduced by half in fiscal year 2020. The federal match returns to the regular CHIP rate following that reduction. Healthcare Not-For-Profit Provisions The healthcare industry has many mission based not-for-profits, including some of the largest hospital systems in the country. The Act impacts tax-exempt providers in several ways, including tax rates on unrelated business income, executive compensation (excise taxes) and interest from advanced refunding bonds. Additionally, the estate tax incentive for bequests to charitable organizations has been altered, while the tax percentage remains the same.

Tax rates on Form 990-T for unrelated business income for incorporated entities will be a flat 21% for tax years beginning after December 31, 2017. This means there is no blended rate for fiscal year filers. A new excise tax will apply to tax-exempt organization executive compensation. An excise tax of 21% will apply to the highest paid employees who receive pay in excess of $1 million during a taxable year or who receive an “excess parachute payment” at separation — even if the covered employee’s pay does not exceed $1 million. Separation payments in excess of three times the average salary from the last five years are deemed excessive. Vesting of nonqualified deferred compensation (so called section 457(f) plans) could trigger this tax. The employer pays the excise tax. Employees in medical professions may be excluded from “covered employees” with regard to the performance of medical services. The provision applies for tax years beginning after December 31, 2017. Interest on advance refunding bonds will be taxable for refunding bonds issued after December 31, 2017. Unrelated business income (UBI) will need to be calculated separately for each trade or business carried on. The provision is intended to prevent losses from one activity offsetting income from another activity. The transition rules for net operating losses (NOLs) arising in tax years beginning before January 1, 2018, appear to be taxpayer friendly. The provision is effective for tax years beginning after December 31, 2017. UBI is increased by the amount of certain fringe benefits. The Act requires unrelated business taxable income to include most expenses paid or incurred by a tax-exempt organization for qualified transportation fringe benefits such as, a parking facility used in connection with qualified parking or any on-premises athletic facility. In other words, if a for-profit business cannot deduct such expenses under the amendments made by the Act, then a tax- exempt organization will generally have to

Spring 2018

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