House Extends Health Tax Credit in Trade Bill combating China

January 26, 2022

Tucked inside trade legislation aimed making the U.S. more competitive with China is a provision that makes permanent the health coverage tax credit and increases the amount of the qualified health insurance premiums covered by the credit from 72.5% to 80%.

Under current law, this credit expired on January 1, which means it can be used when filing tax returns for 2021. Congress must extend it to be used for the current year.

State of Play:

House Democratic leaders on January 25th released legislation called the America Creating Opportunities for Manufacturing Pre-Eminence in Technology and Economic Strength (America COMPETES) Act of 2022 (H.R. 4521).

The primary thrust of the bill is to boost semiconductor production in the U.S. so companies are not dependent on chips made in China. It’s essentially a trade bill.

The health tax credit included in this legislation is in section 101601 of the bill. The increase in the credit would take effect after December 31, 2021.

The House could vote on this bill as soon as next week, and passage is expected.

Next Steps:

The Senate passed its version of this bill (called the United States Innovation and Competition Act of 2021 or USICA) in May of 2021.

The Senate bill does not include section 101601 that is in the House bill.

House and Senate leaders must hash-out the differences between their bills before the legislation can be signed into law. Lawmakers refer to this process as a “conference.”

Republican support in the Senate will be needed to pass the agreed-upon bill from the chamber. This makes it highly unlikely that tax increases will be added to the bill.

Tax modifications that have bipartisan support could be added to the bill while it is in conference (although adding provisions in conference that aren’t in either the House or Senate bill is rarely done). But if provisions are added, delaying the amortization of R&D expenses and the limitation on the 163(j) interest deduction top the list.  

However, it is not clear if section 101601 of the House bill will be in the final product. If it is removed, the odds decrease for other tax provisions being added to the legislation.

Final Product:

It is not clear when both chambers of Congress will approve the same bill. Some lawmakers are expecting the final product before Memorial Day. Biden Administration officials, like Commerce Secretary Gina Raimondo, said enactment should come in February or March, according to Punchbowl News.

Raimondo’s timeline could be challenging to meet. Congress must find bipartisan consensus to extend funding for the federal government by February 18th, a process that has proven arduous and time consuming in the past, and in some cases led to a partial shutdown of the federal government.

Getting both political parties onboard with funding the federal government will likely take priority over enacting the China trade bill since the latter does not have a deadline attached to it. If Congress fails to extend federal government funding by February 18th, a partial shutdown will ensue.

What about Build Back Better:

Given that Democratic leaders need Republicans to pass the funding and the China trade bills, it might be ill-timed to push the tax and spending reconciliation bill (aka Build Back Better) that Republicans oppose.

The House passed the reconciliation bill in November. Since then, it has been stalled in the Senate due to opposition from Senator Joe Manchin (D-W.Va.). Democrats in the upper chamber are expected to narrow the provisions that are in the bill to win Manchin’s support, but it is not clear what provisions will be cut from the bill.

While Senate action on the bill is unclear, House Majority Leader Steny Hoyer (D-Md.) strongly suggested on January 25th that whatever the upper chamber passes will likely also pass the House.

“Very frankly, we’ll have a decision to make: Do we support that which the Senate can pass? My argument will be – and I believe the Speaker’s argument will be – ‘yes’ we do,” Hoyer told Politico.  

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