House Committee Approves Legislations to Repeal 3 Percent Withholding Rule and Modify the Income Definition for Certain Health Care Programs

The House Committee on Ways and Means has favorably reported out two tax bills: H.R. 674, sponsored by Rep. Wally Herger (R-CA) and Rep. Earl Blumenauer (D-OR), to repeal the 3 percent withholding rule on certain payments made to vendors by government entities, and H.R. 2576,  sponsored by Rep. Diane Black (R-TN), to align the income definition for certain health programs to more closely reflect how it is measured in other federal means tested programs.  Both bills were voted out of Committee on a bipartisan basis.

H.R. 674:

H.R. 674 repeals the 3% withholding provision of the Internal Revenue Code of 1986. The provision requires government agencies at all levels (federal, state, and local) to withhold 3 percent of their payments to businesses for goods and services. This amount is held as a down payment of the business’s federal income tax liability. According to the bill’s proponents, there has been broadly expressed concern among small businesses that the provision could wipe out their already slim profit margins.

The bill was passed unanimously out of committee and is expected to be voted upon by the full House of Representatives in a few weeks. Herger’s legislation, which currently has 269 bipartisan cosponsors, has been strongly supported by a broad coalition of business groups, including the Chamber of Commerce, National Association of Manufacturers, and National Federation of Independent Businesses.

“It’s important to emphasize that while H.R. 674 is scored as reducing revenue by $11 billion, it also eliminates the far greater cost of implementing this looming tax, a cost that’s been estimated at $17 billion for the Department of Defense alone. Repeal is fiscally responsible,” Rep. Herger said after the markup.

H.R. 2576:

U.S. Representative Diane Black (R-TN) introduced H.R. 2576, a bill that would close the loophole in the health care law that would allow some middle class Americans to qualify for Medicaid.  Preliminary estimates from the Congressional Budget Office show that closing this loophole could save taxpayers $13 billion over ten years.

The Patient Protection and Affordable Care Act requires states to use modified adjusted gross income (MAGI) for calculating income levels to determine eligibility for Medicaid and exchange subsidies.

This new standard definition of income, which would take effect in 2014, deviates from long-standing practice in other federal assistance programs by failing to include all Social Security benefits as income.  H.R. 2576 would add Social Security benefits back into the income calculation by amending the Internal Revenue Code and would not increase the number of uninsured Americans.

At a July 14 House Budget Committee hearing, Richard Foster, Centers for Medicare and Medicaid Services Chief Actuary said of the current policy that would allow middle class Americans to qualify for Medicaid, “It just doesn’t make sense.”

H.R. 2576 was passed with a vote of 23-12, with 22 Republicans and 1 Democrat voting in favor of passage, and 2 Democrats not voting.

Senator Mike Enzi (R-WY), ranking member of the Senate Health, Education, Labor and Pensions (HELP) Committee introduced similar legislation in the Senate.

Also See:

IRS Reminds Tax Preparers Need to File Due Diligence Checklist with All Earned Income Tax Credit Claims

IRS Provides Penalty Relief to Farmers Affected by MF Global Bankruptcy

IRS Issues Guidelines to Parents and Students on College Tax Benefits

Treasury, IRS Issue Proposed Regulations for FATCA Implementation

IRS Issues Guidance to Encourage Small Employers to Check Out Small Business Health Care Tax Credit