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US House Passes Bill To Improve Health Savings Accounts

by Mike Godfrey, Tax-News.com, Washington

08 July 2016


On July 5, against opposition from President Barack Obama, the US House of Representatives passed tax-related health care legislation that includes an expansion of health savings accounts (HSAs) and an increase to the existing caps on repayments of advance premium tax credits (APTCs).

HSAs are generally used to pay for out-of-pocket medical expenses that are not covered by health insurance plans, which usually cover large and/or unexpected health events. Contributions under an HSA, other than employer contributions, are deductible on the individual's return, while employer contributions are not included in taxable income. Interest or other earnings on the assets in the account, and distributions from an HSA that are used to pay qualified medical expenses, are also not taxed.

While the new bill, H.R. 1270, Restoring Access To Medication Act, would allow the purchase of over-the-counter medicines through an HSA without a doctor's prescription, it would also sharply increase maximum contributions into an HSA to USD6,550 individually and USD13,100 for a family (indexed annually with inflation). This would match the maximum limit on HSA-qualified insurance plans.

H.R. 1270 would also require taxpayers to repay the full amount of overpayments they may receive for APTC assistance under the Affordable Care Act. The bill's main sponsor, Lynn Jenkins (R – Kansas), stated that, "despite Democrat claims, this is not a tax increase or a way to punish those who receive a pay increase. Rather, it is a measure to show our constituents that we are taking care of their tax dollars and rooting out waste when we see it."

In support of the whole bill, the House Ways and Means Committee Chairman, Kevin Brady (R – Texas), noted that it "will help people and families throughout the nation by improving choice and affordability in health care." However, Committee Ranking Member Sander Levin (D – Michigan) called it "a tax cut mainly for the wealthy," who use HSAs the most.

As the White House warned in a Statement of Administration Policy issued on June 21, the Administration strongly opposes the passage of H.R. 1270, "which would provide additional tax breaks that disproportionately benefit those with higher income, … [and] would increase taxes for low-and middle-income people by removing the law's limit on repayment of premium tax credits." It was confirmed that the President would veto the bill if it arrived on his desk.

TAGS: individuals | compliance | tax | tax compliance | law | insurance | tax credits | health care | legislation | United States | tax breaks | inflation | individual income tax

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