High-income households will come out ahead, at the expense of the poor, if the Supreme Court repeals the Affordable Care Act.
Last month, the Trump administration asked the Supreme Court to drop the health care measure, arguing that the law became unconstitutional when Congress removed the fine for not having coverage in 2017.
Without this so-called individual mandate, its other provisions are invalid, wrote Attorney General Noel J. Francisco in a June 25 brief filed with the Supreme Court.
“Nothing that the 2017 Congress did shows that it had intended that the rest of the ACA continue to operate in the absence of these three comprehensive provisions,” he wrote. “The entire ACA, therefore, must fulfill the individual mandate.”
While millions of people could lose their insurance coverage without the health care law, higher-income households would reap significant tax benefits.
They could save between $ 35 billion and $ 40 billion in taxes annually, according to Howard Gleckman, a senior fellow at the Urban-Brookings Fiscal Policy Center.
“Repealing or repealing the Affordable Care Act would be a big tax cut, mainly for high-income people,” he said.
Premium tax credits
One of the ways the ACA made health care accessible to millions of people was by subsidizing the cost of health insurance premiums for low- and middle-income households.
Families are eligible for premium tax credits to offset the cost, provided their household income does not exceed 400% of the federal poverty line.
In 2019, more than 8.8 million people who purchased health insurance on the market also received premium tax credits, according to data from the Kaiser Family Foundation.
According to Kaiser, the average monthly premium tax credit was $ 514 in 2019. The amount of tax credits households can receive depends on income and other factors.
To help pay for these and other ACA benefits, lawmakers established two new taxes for high-income taxpayers.
Two high income taxes
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One is the 3.8% net investment income tax. Applies to the lowest net investment income or excess modified adjusted gross income of more than $ 200,000 for single taxpayers ($ 250,000 for married filing jointly).
Second, the law created a 0.9% additional Medicare tax, levied on wages above a certain threshold. For single taxpayers, that’s more than $ 200,000 compensation (married filing jointly faces a threshold of $ 250,000).
A taxpayer who is married and files a joint return, earning $ 250,000 in wages and $ 250,000 in investment income would be subject to $ 9,500 in tax on net investment income, according to Phil Gross, a partner at Kleinberg Kaplan.
Undoing the ACA would return the money to that person’s pocket in the form of a tax refund, he said.
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Taxes, and refunds if the ACA were canceled, become even more substantial for wealthier households.
A joint taxpayer who gets $ 1 million in investment income, but not wages, would face a net investment income tax of $ 28,500, Gross found. This money would go back to the taxpayer if the law were repealed.
The highest income of 0.1% of households, that is, people with annual incomes of more than $ 3 million, would receive tax cuts that average $ 198,000 a year, according to the Center for Budget and Policy Priorities.
“It is potentially a lot of money, even for the average wealthy person,” Gross said. In fact, before July 15, taxpayers were quick to file protection claims for fiscal year 2016 with the IRS, he said. Filers have up to three years to claim refunds from previous years.
Protection claims notify the IRS that the taxpayer may be entitled to a refund based on future events, such as litigation or expected changes in tax law.
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