Looks like tax changes are on the way. Below are some of the recommendations that President Biden’s team and the House Ways and Means Committee have each proposed recently that will impact the federal income taxes paid by successful healthcare professionals if enacted into law:
PROPOSED CHANGES TO PERSONAL TAXES
Restore the top tax rate to 39.6%
Both groups’ proposals would restore the top tax rate to 39.6%, up from the current top rate of 37%, for taxpayers with taxable income over $400k if single or $450k if married.
Eliminate the advantageous capital gains rates for high earners
For taxpayers earning over $1 Million, President Biden’s American Families Plan would double the tax rate on long-term capital gains by eliminating the current 20% tax rate and instead, having that income taxed as ordinary income at a rate of 39.6%. Add that most long-term capital gains for taxpayers earning over $250k are also subject to Medicare taxes (also known as the Net Investment Income Tax – NIIT) at 3.8%, and this brings the total proposed federal capital gains tax rate to 43.4%. Throw in your state’s income taxes on those gains, and the rate on realized long-term capital gains could top 50%.
The House Ways and Means Committee, meanwhile, has recommended a top federal capital gains tax rate of 25% for high income households plus the 3.8% Medicare Tax.
Limit who would qualify to defer taxes on real estate transactions
Over the years, taxpayers selling appreciated real estate could defer taxes indefinitely by purchasing more expensive real estate within 180 days of the sale of the appreciated property and by also following certain mandatory steps required for the transaction to qualify as a “like-kind exchange”. The American Families Plan would end this tax deferral strategy on realized gains exceeding $500,000.
PROPOSED CHANGES TO COMBAT NON-COMPLIANCE OF TAX RULES
Increase IRS funding to lead to better enforcement
The American Families Plan would allocate $80 billion over the next 10 years to increase IRS funding with a primary purpose of stronger enforcement towards individuals in the top tax bracket and for large corporations as well.
PROPOSED CHANGES TO BUSINESS TAXES
Raise the tax rate from 21% to 28% for C-Corps
Very few small healthcare practices operate as C-Corps these days, and with corporate tax rates potentially increasing by 33% from a current rate of 21% to a proposed rate of 28%, looks like S-Corps, LLCs, and other flow through entities will continue to be the entities of choice for practice owners.
Institute a 3.8% Medicare Tax on S-Corp Owners
Currently, S-Corp practice owners are exempt from paying the 3.8% Net Investment Income Tax (NIIT) on all non-salary income reported on the K-1. Biden’s proposal would institute this 3.8% tax on S-Corp income for practice owners with taxable income over $400k if single or $500k if married.
We’ll be keeping an eye on which tax changes are finally enacted and reach out to you on these changes and the related planning opportunities right away.
Just like the baseball and football season, the fall is where things really start to heat up in the Dental Practice Acquisition market. To that end, Bank of America is launching an extremely low interest rate loan product for dentists who are seeking financing to purchase a practice.
HISTORICALLY LOW INTEREST RATES!
Highlights of the offering are:
- 89% fixed interest rate for the first two years.
- Very competitive fixed interest rate thereafter – the blended rate is well under 3%!
- Available on 10, 12, and 15 year terms.
- Availability is limited to Practice Acquisition loans
- Rate promotion is available to both first time and existing owners.
- Ability to “opt-out” of the 1.89% rate promotion and choose the low blended fixed rate option – currently 2.69% on a 10 year loan!
For more info on Bank of America’s low interest rate offer, please email firstname.lastname@example.org.
More stimulus money is now available to small healthcare practices. According to HRSA at: https://www.hrsa.gov/provider-relief/future-payments:
On September 29, 2021, health care providers will be able to apply for $25.5 billion in relief funds, including $8.5 billion in American Rescue Plan (ARP) resources for providers who serve rural patients and $17 billion for Provider Relief Fund (PRF) Phase 4 for a broad range of providers who can document revenue loss and expenses associated with the pandemic.
In order to streamline the application process and minimize administrative burdens, providers will apply for both programs in a single application and HRSA will use existing Medicaid/CHIP and Medicare claims data in calculating portions of these payments.
Phase 4 General Distribution — $17 billion based on providers’ lost revenues and changes in operating expenses from July 1, 2020 to March 31, 2021.To promote equity and to support providers with the most need, HRSA will:
- Reimburse a higher percentage of lost revenues and expenses for smaller providers as compared to larger providers
- Provide “bonus” payments based on the amount of services they provide to Medicaid, CHIP, and Medicare patients, priced at the generally higher Medicare rates.
PHASE 3 RECONSIDERATIONS
To promote transparency in the PRF program, HHS has released detailed information (PDF – 175 KB available at: https://www.hrsa.gov/sites/default/files/hrsa/provider-relief/phase-3-methodology-overview.pdf) about the methodology utilized to calculate Phase 3 payments. Providers who believe their Phase 3 payment was not calculated correctly according to this methodology will now have an opportunity to request a reconsideration [as follows]
If you have general questions about the PRF, please contact the Provider Support Line at 866-569-3522.
HHS recognizes that providers may have questions regarding their Phase 3 payment determinations.
HRSA is developing a structured process to review and reconsider applications and payment
determinations. Any corrections to payment determinations are subject to the availability of funds.
If after reviewing the above methodology you believe your payment was calculated incorrectly, or if you
would like to be notified when more information becomes available regarding the reconsiderations
process, please contact PRFReconsiderations@hrsa.gov.
If you would like our assistance to apply for the Phase-4 Provider Relief Fund subsidy, please email us at email@example.com.
Medical and other healthcare providers who received more than $10k in Provider Relief Funds prior to 6/30/20 are required to self-report by 9/30/21 that those funds were utilized correctly. Due to very lackluster self-reporting submission rates, HRSA recently announced a 60-day grace period for Reporting Period 1 only at: https://www.hrsa.gov/provider-relief/reporting-auditing:
Announcing 60-Day Grace Period – Reporting Period 1
The September 30, 2021 Reporting Period 1 deadline has not changed, however in response to challenges providers are facing given the Covid surges and natural disasters around the country a 60-day Grace Period is in place. This period allows providers to come into compliance with their PRF reporting requirements should they fail to meet the September 30, 2021 deadline.
- While you will be out of compliance if you do not submit your report by September 30, 2021, recoupment or other enforcement actions will not be initiated during the 60-day grace period (October 1 – November 30, 2021).
- The grace period begins on October 1, 2021 and will end on November 30, 2021.
- Providers who are able are strongly encouraged to complete their report in the PRF Reporting Portal by September 30, 2021.
- Providers should return unused funds as soon as possible after submitting their report. All unused funds must be returned no later than 30 days after the end of the grace period (December 30, 2021).
This grace period only pertains to the Reporting Period 1 report submission deadline. There is no change to the Period of Availability for use of PRF payments.
We have helped many medical practice owners with their PRF Self-reporting, and the process has turned out to be quite cumbersome. If you’d like our assistance with complying with the PRF self-reporting requirements, please email firstname.lastname@example.org. There is still time for us to help you meet the 9/30/21 self-reporting deadline.
One more ERC update as we prepare to contact our practice owner clients with an approximation of the amount of the Employee Retention Tax Credit their practice should be eligible to receive. Earlier this month, the IRS announced that the wages of owners of more than 50% of the value of the practice won’t qualify for this credit unless the shareholder has NO living relatives.
This crazy rule was detailed in IRS Notice 21-49 available at: https://www.irs.gov/pub/irs-drop/n-21-49.pdf.
We have considered waiting for Congress to provide clarity on this most recent IRS ruling. Not allowing the wages paid to practice owners to be included in the ERC calculation reduces this valuable payroll tax credit by $5k.
Everything we have read since the IRS issued Notice 21-49 has indicated that clarifying this issue is not currently a priority to Congress. For that reason, we plan to move forward with processing the amended payroll tax forms to file for the ERC once we get approval from each of our clients. Expect to hear from us by the end of September. If the rules change, we can re-file later to request the additional $5k ERC.