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U.S. House May Cancel Tax-Reporting Rules in Health-Care Law

House Panel Votes to End Tax-Reporting Rules in Health-Care
Lawmakers have been debating for months over how to address the so-called 1099 provision. Illustration: Bloomberg

The U.S. House of Representatives will vote as soon as next month on a measure to eliminate a tax-reporting requirement from last year’s health-care law that is opposed by many small businesses.

Members of both parties have criticized the rules, which require that businesses report to the government payments to corporations for goods or property exceeding $600 per payee each year. Companies have been complaining about the requirement, which they say would create an onerous paperwork burden, particularly for small businesses.

“This is a win-win-win for taxpayers,” House Ways and Means Chairman David Camp, a Michigan Republican, said Feb. 17 before his committee voted 21-15 along party lines to advance a bill on the issue. Democrats voted against the repeal because they said it includes a revenue-raising provision that would harm middle-class families.

To make up for the $22 billion in tax revenue that the provision was projected to generate over the next decade, the bill would require people who receive overpayments of health insurance tax credits to pay back more money to the government. Those credits will be available starting in 2014.

House Majority Leader Eric Cantor of Virginia said Republicans hope to bring the measure “to the floor this spring.” A House floor vote might come as soon as the week of Feb. 28, said a House Republican leadership aide, who asked not to be identified because plans aren’t completed.

1099 Provision

Lawmakers have been debating for months over how to address the so-called 1099 provision, named for the Internal Revenue Service form that it requires. President Barack Obama called the reporting rules a “flaw” in the health-care law in his Jan. 25 State of the Union address.

In the budget he released Feb. 14, Obama proposed curtailing the requirement. In his budget plan, businesses would be required to file reports to the IRS for payments to corporations for services and not for goods. They already must report payments to non-corporations for services.

The Senate voted Feb. 2 to eliminate the 1099 provision and pay for the change by rescinding previously approved spending.

Senator Kent Conrad, a North Dakota Democrat and senior member of the Finance Committee, said he opposes the new House revenue-raising provision, raising doubts about how quickly the bill can become law.

“I’m not a fan of their proposal,” he said in an interview.

Democrats conceded that the provision in the health-care law wasn’t well crafted. They also said that it attempts to address a real problem of underreporting of taxable income.

The revenue-raising provisions in the House bill approved today would require people to repay the federal government when they receive a larger credit than they were due, which could occur if income rises during the year. The credits are paid directly to health insurers.

Repayment Rules

Under the overhaul, as amended by separate legislation enacted last December, the U.S. can reclaim between $300 and $1,750 from individuals on a sliding income scale as much as 500 percent of the federal poverty level. The law requires anyone with an income of at least five times the poverty level to return the full subsidy.

The Republican bill would increase the amount that some subsidy recipients would have to repay, lowering the income threshold for full repayment to 400 percent of poverty.

“If you’re interested in the integrity of this program and the integrity of the tax code, then this is something that should be common sense,” said Louisiana Republican Charles Boustany.

An aggressive policy of reclaiming past overpayments of tax subsidies could create disincentives for people to seek assistance out of concerns over future tax liability if their income were to change, said Len Nichols, the director of the Center for Health Policy Research and Ethics at George Mason University in Fairfax, Virginia.

‘Aggressive Clawback’

“An extremely aggressive clawback will make people reluctant to take the subsidy in the first place,” he said by telephone yesterday.

Thomas Barthold, chief of staff of the Joint Committee on Taxation, said the change would increase the number of uninsured people by 265,000 in 2016.

Democrats opposed the changes to the health subsidies, calling them tax increases and saying they would prefer the Senate’s approach. Those offsets include curtailing tax provisions that benefit multinational corporations or imposing limits on tax provisions that benefit oil and gas companies.

“The people who are most affected by this are poor and middle-class families who are already struggling to make ends meet,” said Representative Shelley Berkley, a Nevada Democrat.

The Ways and Means bill also would eliminate information-reporting requirements for some payments made by owners of rental property. Those were included in a small-business law enacted last September.

The committee also approved a separate bill that would eliminate the 1099 requirement without offsets.

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