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House Tax Reform Bill: A Look at How It Breaks Down

UPDATE: (November 14, 2017) A Look at The Senate Tax Reform Bill

On November 2, 2017, House Ways and Means Committee introduced the much anticipated House Tax Reform Bill – The Tax Cuts and Jobs Act. The bill is 429 pages, so it will take some time to completely digest and analyze all of the provisions. The scope of the proposed changes is very broad and the task is more difficult as various provisions are a moving target, since the House Ways and Means Committee’s markup began Monday, November 6th. The Senate Finance Committee, the Senate counterpart to the House Ways and Means Committee, is expected to release its version of the tax bill the week of Nov. 13th. The Administration has expressed its desire to sign tax legislation by Christmas.

If the Bill becomes law, it will mark the most significant change to the Tax Code in over 30 years. The bill generally would apply to taxable years beginning after December 31, 2017. Here is an overview of key provisions:

Business Provisions

Corporate tax rate. Lowers the corporate tax rate to 20% – down from 35%
Pass-through rate. Sets a top 25% rate for owners who are active participants in pass-through businesses such as sole-proprietorships, S corporations and partnerships. The plan includes complicated guardrails that limit people from turning what would otherwise be wage income taxed at up to 39.6% into business income taxed at a lower rate (presumptively set at 30% — 0% for service-related businesses) of their business income.
Immediate expensing of business investment. Allows businesses to immediately write off the full cost of new equipment instead of depreciating it over a number of years.
Net Operating Losses. Establishes an indefinite carryforward (and no carryback) for net operating losses (“NOL”) but also caps the NOL deduction at an amount equal to 90% of taxable income (as computed without the NOL deduction).
LITC. Retains the low-income housing tax credit.
R&D. Preserves the Research & Development Tax Credit.
Interest deduction. Limits the business interest expense deduction, capping it at 30% of earnings before interest, taxes, depreciation and amortization, which is a measure of cash flow. Real estate firms and small businesses would be exempt from that limit.
Limits executive compensation deduction. Publicly traded businesses would lose the ability to deduct certain executive compensation above $1 million, which they can now do for performance-based pay.
Nonqualified Deferred Compensation. Nonqualified deferred compensation, stock options, and stock appreciation rights would be subject to immediate taxation upon “vesting,” which (in many cases) might also be triggered more quickly.
Limits like-kind exchanges. Limits §1031 like-kind property exchanges to real propert
Repeals the following:
- Corporate Alternative Minimum Tax
- Entertainment expense and certain fringe benefits deductions
- Technical terminations of partnerships
- New market tax credit
- Exclusion from income of §118 contributions to capital

International Provisions

Repatriation tax rate. Creates a one-time 12% tax on offshore earnings held as cash or cash equivalents and a 5% tax on noncash assets, payable over up to eight years, whether or not the earnings are repatriated.
Controlled Foreign Corporations. Creates a new 10% tax on US companies’ high-profit foreign subsidiaries, calculated on a global basis.
Territorial Tax System. Establishes territorial taxation with a 100% exemption for domestic corporations on dividends from certain foreign subsidiaries.

Tax-Exempt Entities

Sports stadium financing. Eliminates tax-exempt bond treatment for professional stadiums.
Executive Compensation. Establishes 20% excise tax on compensation paid in excess of $1 million to an executive of a tax-exempt organization.
Excise tax on private college endowments. Imposes a 1.4% excise tax on net investment income of private colleges and universities if the aggregate fair market value of assets is at least $100,000 per student.
Permissible political activity. Establishes rule that churches and religious organizations will not lose exempt status or be deemed to have intervened in any political campaign on behalf of a candidate as a result of the content of any sermon, teaching or presentation.

Individual Provisions

Reduces the number of individual tax rates as follows:
- 12%: Applies to incomes from $0 up to $45,000 for individuals and $90,000 for couples.
- 25%: Applies to incomes up to $200,000 for individuals and $260,000 for couples.
- 35%: Applies to incomes up to $500,000 for individuals and $1 million for couples.
- For single parents that are heads of households, the thresholds would be the midpoint between individuals and joint filers, except for the highest bracket which would still kick in at $500,000.
- 39.6%: Applies to incomes over $500,000 for individuals and couples making more than $1 million a year.

A larger standard deduction. The standard deduction for all taxes would increase to $12,000 for individuals (up from $6,350) and $24,000 for couples (up from $12,700). The benefit is offset, however, since the Bill eliminates the personal exemption and various secondary deductions.
Expands child tax credit. The Bill proposes to increase the child tax credit to $1,600, up from $1,000, for any child under 17. But the Bill also limits the refundability of this credit. The $600 increase in the credit is, however, not refundable. Further, the Bill will let more people claim the child tax credit. The income level where the credit starts to be phased out is increased to $115,000 for single parents, up from $75,000 today, and to $230,000 for married parents, up from $110,000.
Creates two new family credits. The Bill would create two different $300 tax credits.
Credit for non-child dependents. Credit for nonchild dependents — for instance, any son or daughter over 17 whom you are supporting, an ailing elderly mother or an adult child with a disability. The credit is equal to $300 per individual.
Spousal Credit. A $300 credit for each spouse if they file jointly (or, in the case of single parents, the head of household).

These credits are in effect only for 5 years and would not be refundable.

Charitable contributions. The Bill continues the deduction for charitable contributions.
Retains the earned income tax credit. Provides tax relief for low-income Americans.
No changes to 401(k) plans. Retains retirement savings options such as 401(k)s and IRAs.
No repeal of Affordable Care Act’s individual mandate.
Limits the home-mortgage interest deduction. Retains the home mortgage interest deduction for existing mortgages but limits the home mortgage interest deduction for newly purchased homes for mortgages up $500,000.
SALT Deduction. Limits the state and local tax deduction to local property taxes up to $10,000 but eliminates the deduction for state income and sales taxes.
Patents and inventions. Adds patents and inventions to the list of assets that are not treated as capital assets.
Eliminates personal exemptions. The Bill eliminates the personal exemption of $4,050 for you, your spouse and each of your dependents.
Removes most personal itemized deductions. The only deduction preserved explicitly is for charitable gifts and edited home-mortgage interest and SALT deductions. Eliminated itemized deductions include:
- Student-loan-interest deduction.

- Medical expense deduction.
- Moving expense deduction.
- Alimony payments.
Repeals the adoption tax credit. Repeals the tax credit for adoption.
Eliminates the exclusion for dependent care assistance accounts. Some employers provide parents the opportunity to save up to $5,000 of their income in a dependent care flexible spending account. That money is excluded from the parent’s taxable income. The Bill would repeal that exclusion.
Removes the deductions for MSA’s. Deductions for contributions to Medical Savings Accounts (“MSAs”) and exclusion from income for contributions of employers to MSAs are eliminated under the Bill.
Repeals the estate tax. Under current law, the threshold for the tax, which applies only to estates with greater than $5.6 million in assets during 2018, would double to over $10 million. Then, the tax would be phased out after six years.

Fraser Trebilcock attorney Paul V. McCord has more than 20 years of tax litigation experience, including serving as a clerk on the U.S. Tax Court and as a judge of the Michigan Tax Tribunal. Paul has represented clients before the IRS, Michigan Department of Treasury, other state revenue departments and local units of government. He can be contacted at 517.377.0861 or pmccord@fraserlawfirm.com.

Client Alert/Reminder: Form W-2 Reporting Due / Disclosure Due to CMS for Medicare Part D

UPCOMING DEADLINES: (1) FORM W-2 REPORTING; AND

(2) MEDICARE PART D NOTICES TO CMS

Reminder: Form W-2 Reporting on Aggregate Cost of Employer Sponsored Coverage

Unless subject to an exemption, employers must report the aggregate cost of employer-sponsored health coverage provided in 2016 on their employees’ Form W-2 (Code DD in Box 12) issued in January 2017. Please see IRS Notice 2012-9 and our previous e-mail alerts for more information.

The following IRS link is helpful and includes a chart setting forth various types of coverage and whether reporting is required: http://www.irs.gov/Affordable-Care-Act/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage. Please note this is a summary only and Notice 2012-9 should also be consulted.

If you have questions regarding whether you or your particular benefits are subject to reporting, please feel free to contact us.

Deadline Coming Up for Calendar Year Plans to Submit Medicare Part D Notice to CMS

As you know, group health plans offering prescription drug coverage are required to disclose to all Part D-eligible individuals who are enrolled in or were seeking to enroll in the group health plan coverage whether such coverage was “actuarially equivalent,” i.e., creditable. (Coverage is creditable if its actuarial value equals or exceeds the actuarial value of standard prescription drug coverage under Part D.) This notice is required to be provided to all Part D eligible persons, including active employees, retirees, spouses, dependents and COBRA qualified beneficiaries.

The regulations also require group health plan sponsors with Part D eligible individuals to submit a similar notice to the Centers for Medicare and Medicaid Services (“CMS”). Specifically, employers must electronically file these notices each year through the form supplied on the CMS website.

The filing deadline is 60 days following the first day of the plan year. If you operate a calendar year plan, the deadline is the end of February. If you operate a non-calendar year plan, please be sure to keep track of your deadline.

At a minimum, the Disclosure to CMS Form must be provided to CMS annually and upon the occurrence of certain other events including:

1) Within 60 days after the beginning date of the plan year for which disclosure is provided;
2) Within 30 days after termination of the prescription drug plan; and
3) Within 30 days after any change in creditable status of the prescription drug plan.

The Disclosure to CMS Form must be completed online at the CMS Creditable Coverage Disclosure to CMS Form web page at:

https://www.cms.gov/Medicare/Prescription-Drug-Coverage/CreditableCoverage/CCDisclosureForm.html

The online process is composed of the following three step process: (1) Enter the Disclosure Information; (2) Verify and Submit Disclosure Information; and (3) Receive Submission Confirmation.

The Disclosure to CMS Form requires employers to provide detailed information to CMS including but not limited to, the name of the entity offering coverage, whether the entity has any subsidiaries, the number of benefit options offered, the creditable coverage status of the options offered, the period covered by the Disclosure to CMS Form, the number of Part D eligible individuals, the date of the notice of creditable coverage, and any change in creditable coverage status.

For more information about this disclosure requirement (instructions for submitting the notice), please see the CMS website for updated guidance at:

https://www.cms.gov/Medicare/Prescription-Drug-Coverage/CreditableCoverage/CCDisclosure.html

As with the Part D Notices to Part D Medicare-eligible individuals, while nothing in the regulations prevents a third-party from submitting the notices (such as a TPA or insurer), ultimate responsibility falls on the plan sponsor.

This email serves solely as a general summary of the Form W-2 reporting requirements and CMS disclosure for Medicare Part D.

This correspondence is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

Questions? Contact us to learn more.

Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2018 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

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Client Alert: Estate and Gift Tax Limits Announced for 2017

The IRS has issued the estate and gift tax limits for 2017 (Rev. Proc. 2016-55). For an estate of a person dying in 2017, the basic exclusion amount is $5,490,000 for determining the credit against federal estate tax. This means that for a person dying in 2017, no federal estate tax will be imposed if his or her gross estate is less than $5,490,000. Therefore, with proper estate planning, an individual could transfer up to $5,490,000, or a married couple could transfer up to $10,980,000, to their children without paying federal estate tax. The basic exclusion amount for 2017 was adjusted for inflation up from the 2016 amount of $5,450,000.

In 2017, the first $14,000 of gifts of a present interest made to any person is not included in the total amount of taxable gifts. For example, a person can gift up to $14,000 of a present interest from January to December 2017 without reporting the gift to the IRS, without using any lifetime gift tax exemption, and without paying gift tax. However, if you are a married couple wanting to make a similar gift, slightly different rules apply. Gifts to a spouse who is a United States citizen are not restricted by this $14,000 limitation. For gifts to a spouse who is not a United States citizen, the first $149,000 of gifts of a present interest are not included in the total amount of taxable gifts that must be reported to the IRS.

Other gifts not restricted by the $14,000 limitation include qualified gifts paid directly to institutions for educational or medical purposes. A qualified gift would include direct payment to a college or university for another person’s tuition or direct payment to a hospital for another person’s medical bills. The annual exclusion amount for gifts is periodically adjusted for inflation but adjustments do not happen every year. For example, the $14,000 exclusion amount for gifts for 2017 is the same as it was in 2016.

Stay tuned for updates on what tax changes may come out of the 115^th United States Congress. It is expected that tax reform, in one shape of another, will happen. We will keep you up-to-date on changes that may impact your income, estate and gift taxes.

For help understanding these estate and gift tax limits, or for reviewing your will or trust under these new tax limits, contact Marlaine C. Teahan, chair of Fraser Trebilcock’s Trusts and Estates Department. Marlaine can be reached at 517-377-0869 or mteahan@fraserlawfirm.com.

Employers Take Note – IRS Extends Deadline for 2016 ACA Information Reporting For Individuals!

The Internal Revenue Service (“IRS”) has extended the deadline for 2016 Information Reporting by employers (and other entities) to individuals under Internal Revenue Code sections 6055 and 6056 by just over one month. However, the deadline for these entities to file with the Internal Revenue Service (IRS) remains the same.

IRS Notice 2016-70 extends the due dates for the following 2016 information reporting Forms from January 31, 2017 to March 2, 2017:

2016 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage
2016 Form 1095-B, Health Coverage

However, the due dates for filing these Forms and their Transmittals with the IRS remains unchanged. Specifically, the due date for filing the following documents with the IRS is February 28, 2017; however, if filing electronically, the due date is March 31, 2017 (employers who are required to file 250 or more Forms must file electronically):

2016 Form 1094-B, Transmittal of Health Coverage Information Returns, and the 2016 Form 1095-B, Health Coverage
2016 Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and the 2016 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage

As a result of these extensions, individuals might not receive a Form 1095-B or Form 1095-C by the time they file their 2016 tax returns. In such case, IRS Notice 2016-70 explains that individual taxpayers may instead rely on other information received from their employers or other coverage providers for purposes of filing their tax returns and do not need to wait to receive Forms 1095-B and 1095-C before filing. Once they do receive their forms, the individuals should keep it with their tax records. You can find the full Notice here.

Please note that no further extension beyond the March 2, 2017 deadline is allowed. Therefore, this deadline for furnishing the Forms to individuals must be met. However, additional extensions may still be available for filing these Forms with the IRS.

Background

As provided in previous Client Alerts, information reporting requirements are applicable under two Internal Revenue Code (“Code”) sections as follows:

Section 6055 for insurers, self-insuring employers, and certain other providers of minimum essential coverage; and
Section 6056 for applicable large employers.

By way of background, the IRS requires applicable large employers and sponsors of self-insured health plans to report on the health coverage offered and/or provided to individuals beginning calendar year 2015. Although the reporting requirements extend to other entities that provide “minimum essential coverage” (such as health insurance issuers), this Client Alert focuses on the requirements imposed on employers.

Employers who are deemed applicable large employers, as well as employers of any size who offer self-funded health coverage, must carefully review and study these instructions, which set forth numerous details, definitions and indicator codes which must be used to complete the requisite forms. The instructions address the “when, where and how” to file, extensions and waivers that may be available, how to file corrected returns, and potential relief from penalties imposed for incorrect or incomplete filing.

The IRS utilizes information from these returns to determine which individuals were offered minimum essential coverage, whether individuals were eligible for premium tax credits in the Marketplace, as well as to determine penalties to be imposed on employers under Pay or Play (Code section 4890H; Shared Responsibility for Employers Regarding Health Coverage, 26 CFR Parts 1, 54, and 301, 79 Fed. Reg. 8543 (Feb. 12, 2014)). Due to the impact of proper reporting, a clear understanding of these forms and instructions is essential.

Code section 6056 applies to applicable large employers (generally employers with at least 50 full-time employees, including full-time equivalent employees). Information with respect to each full-time employee (whether or not offered coverage) must be reported on Form 1095-C. Transmittal Form 1094-C must accompany the Forms 1095-C; all the Forms 1095-C together with the Transmittal Form 1094-C constitute the Code section 6056 information return that is required to be filed with the IRS. For applicable large employers who self-insure, there is a separate box to complete which incorporates the information required under Code section 6055.

Code section 6055 applies to employers of any size who self-insure. Non-applicable large employers with self-funded plans must report their information on Form 1095-B, as well as on transmittal Form 1094-B. All of the Forms 1095-B together with the Transmittal Form 1094-B constitute the Code section 6055 information return that is required to be filed with the IRS. Again, if the employer who self-insures is also an applicable large employer, the employer will instead use Forms 1095-C and 1094-C, which include a section for self-insured plans.

Employers subject to these requirements must report in early 2017 for the entire 2016 calendar year.

Additionally, employers must provide informational statements to the individuals for whom they are reporting. Form 1095-C or Form 1095-B (as applicable) may be used as this informational statement.

The links to the Final Forms and Instructions are below:

2016 Forms for Applicable Large Employers (Code Section 6056)

2016 Instructions for Forms 1094-C and 1095-C: click here.

Form 1095-C, Employer Provided Health Insurance Offer and Coverage: click here.

Form 1094-C, Transmittal of Employer Provided Health Insurance Offer and Coverage Information Returns: click here.

Additionally, the IRS has posted numerous Questions and Answers regarding Code section 6056 on its website, here.

2016 Forms for Employers who Self-Fund (Code Section 6055)

2016 Instructions for Forms 1094-B and 1095-B

Form 1095-B, Health Coverage

Form 1094-B, Transmittal of Health Coverage Information Returns

The IRS’ Questions and Answers regarding Code section 6055 can be found here.

Change in Forms for 2016

The changes to the 2016 forms are reflected in the above Instructions but are relatively minor in scope. The most noteworthy changes are to Form 1094-C with the removal of the Line 22 box for “Qualifying Offer Method Transition Relief” as it was only applicable for 2015; as well as two new Line 14 codes (1J and 1K) added to Form 1095-C which are available to reflect conditional offers of coverage to an employee’s spouse. As explained in the instructions, a conditional offer of coverage to a spouse is “an offer of coverage that is subject to one or more reasonable, objective conditions (for example, an offer to cover an employee’s spouse only if the spouse is not eligible for coverage under Medicare or a group health plan sponsored by another employer).” See 2016 Instructions for Forms 1094-C and 1095-C.

Penalties Imposed

Both sets of Instructions (for Forms 1094/1095-B and Forms 1094/1095-C) set forth the following penalty information for failure to comply with the information reporting requirements for 2016:

The penalty for failure to file a correct information return is $260 for each return for which the failure occurs, with the total penalty for a calendar year not to exceed $3,193,000.

The penalty for failure to provide a correct payee statement is $260 for each statement for which the failure occurs, with the total penalty for a calendar year not to exceed $3,193,000.

Special rules apply that increase the per-statement and total penalties if there is intentional disregard of the requirement to file the returns and furnish the required statements.

However, the IRS has continued the good faith transition relief from penalties for 2016. Indeed, IRS Notice 2017-70 states:

Specifically, this notice extends transition relief from penalties under sections 6721 and 6722 to reporting entities that can show that they have made good-faith efforts to comply with the information-reporting requirements under sections 6055 and 6056 for 2016 (both for furnishing to individuals and for filing with the Service) for incorrect or incomplete information reported on the return or statement. This relief applies to missing and inaccurate taxpayer identification numbers and dates of birth, as well as other information required on the return or statement. No relief is provided in the case of reporting entities that do not make a good-faith effort to comply with the regulations or that fail to file an information return or furnish a statement by the due dates (as extended under the rules described above).

Thus, it is imperative to timely distribute and file the forms; otherwise penalties may ensue.

This correspondence is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

Questions? Contact us to learn more.

Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, she was selected as the 2015 “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.
Click HERE to sign up to receive email updates and alerts on matters related to Employee Benefits.

New Rules Make Preventative Care for Alzheimer’s, Diabetes More Accessible for Medicare Patients

New rules for Medicare services are about to take effect that will give people greater access to preventative care. The Centers for Medicare & Medicaid (CMS) decided that, beginning January 1, 2017, Medicare will pay more for cognitive and behavioral assessments, diabetes prevention programs, and to patient-centered care for people living with multiple chronic conditions and cognitive impairment conditions, including Alzheimer’s disease.

CMS says the new payment rules are part of a push by the Administration to create a health-care system that emphasizes prevention and results in better care, smarter spending, and healthier people. The additional funding will go toward care coordination and patient-centered care, mental and behavioral health care, and cognitive impairment care assessment and planning.

Clinicians will also have the opportunity to be paid more for spending more time with patients. That extra time with physicians could be critically important for patients who have multiple chronic conditions, as older adults sometimes do.

For more information from CMS about the new rules, visit its website here and blog here.

Questions? Contact us to learn more.

Fraser Trebilcock provides counsel on all matters relating to the legal planning for care and support of those needing Medicare and Medicaid. Attorney Melisa M. W. Mysliwiec focuses her work in the areas of Elder Law and Medicaid planning, estate planning, and trust and estate administration. She can be reached at mmysliwiec@fraserlawfirm.com or 616-301-0800. You can also click here to learn more about our Trusts & Estates practice.

Law Day Is A Good Time To Reflect On Our Freedoms

Today, May 1^st, is Law Day in the United States. Thus, it is an appropriate time for all of us to pause and consider the many privileges of living in a free society; privileges which we often take for granted, and responsibilities which we too often overlook.

Distracted by day-to-day concerns, we often lose sight of the fact that we routinely enjoy freedoms that are denied to most of the people in the world today.

While we enjoy freedom of the press, people in many nations have no choice but to read the propaganda in a single government-controlled newspaper.

While we enjoy freedom of speech, Russia and other countries have implemented sweeping restrictions on the Internet.

While we enjoy freedom of religion, people in fully one-third of the world’s nations face sadistic torture merely because of their religious beliefs.

Continue reading Law Day Is A Good Time To Reflect On Our Freedoms

Attorney Jennifer Utter Heston Receives Highest Rating by Martindale-Hubbell, Named “Best Lawyer” in Administrative/Regulatory Law

Fraser Trebilcock attorney Jennifer Utter Heston recently received two highly distinguished honors. She has been selected by her peers for inclusion in The Best Lawyers in America^© 2014 in the field of Administrative/Regulatory Law, and she has achieved an AV Preeminent® peer review rating by Martindale-Hubbell, an honor indicative of a lawyer’s high ethical standards and professional ability.

Ms. Heston represents Michigan’s largest industrial energy users and independent power producers in the areas of public utility and energy law. In addition to Michigan, Ms. Heston is a member of the State Bars in Ohio, Texas, and Wisconsin. She was on the Editorial Board of the American Journal of Criminal Law, and was a Director and Past President of the Michigan 2-1-1 Board of Directors.

For more information, please contact Fraser Trebilcock attorney Jennifer Utter at jutter@fraserlawfirm.com or 517.377.0846.

Is the Court playing politics with wastewater?

On April 25, 2011, in a case illustrating the partisan politics played in the Michigan Supreme Court, the Court issued a 4 to 3 decision to dismiss an environmental protection act case and vacate that Court’s December 2010 decision in the same matter on the ground that the case was “moot.”

Continue reading Is the Court playing politics with wastewater?