The House of Representatives and Senate conferees reached agreement on a single version of the Tax Cuts and Jobs Act (“TCJA”) which was approved by both the House and Senate on December 19, 2017. President Trump signed the bill into law on December 22, 2017. While much of the TCJA publicized material has focused on Federal tax laws affecting individuals there are numerous changes applicable to both taxable and tax-exempt healthcare organizations. Summarized below are several material changes which may affect your healthcare organization.
Please note that these changes generally are effective for years beginning after December 31, 2017 and may be temporary or phased out over the next ten years.
TCJA highlights affecting Federal taxable healthcare organizations:
1. Lowers the Federal corporate income tax rate to a flat rate of 21%.
2. Repeals the Federal corporate alternative minimum tax.
3. Certain qualified business assets acquired and placed in service after September 27, 2017 may be fully expensed and increases the Internal Revenue Code Section §179 limitation to $1 million.
4. Disallows certain entertainment expense deductions but retains the 50% deduction for business related meals.
5. Net operating losses incurred for years’ post December 31, 2017 will be limited to 80% of a taxpayer’s taxable income in each year. Net operating losses incurred prior to years beginning after December 31, 2017 remain unlimited. Generally, losses can no longer be carried back.
6. Increases the gross receipts threshold for the availability of a taxpayer to elect the cash method of accounting for certain corporations and partnerships.
TCJA highlights affecting Federal tax-exempt healthcare organizations:
1. Imposes a 21% excise tax payable by the employer on compensation paid in excess of $1 million to an applicable tax-exempt organization’s covered employees.
2. Amounts paid or incurred by employers relating to certain employee fringe benefits will be treated as unrelated business income. Employee fringe benefits include (1) any qualified transportation fringe benefit (2) any parking facility used in connection with qualified parking and (3) any on-premises athletic facility.
3. Activities which constitute an unrelated trade or business must now be reported separately on a Federal Form 990-T. Aggregating (or netting) a taxpayer’s unrelated trade or business activities and corresponding income/losses are no longer permitted.
4. Net operating losses incurred in unrelated trade or business activities must generally follow the rules for Federal taxable healthcare organizations as outlined above.
5. Interest on bonds issued after December 31, 2017 to advance refund another bond is no longer excluded from gross income.
