Medical Recruiting Insights
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Impact of Tax Cuts and Jobs Act on Residents, Healthcare Organizations and Physician Recruiting
At the end of 2017, the U.S. Congress passed tax reform legislation known as the Tax Cuts and Jobs Act (TCJA), which brought many changes for both individual and organizational income taxes. While every circumstance is unique, and the actual effects of the changes in the tax code are yet to fully be realized, some components of the TCJA are anticipated to impact the healthcare industry’s employees as well as its employers in at least a few areas. As always, consult with a tax planning professional for advice specific to your situation.
Elimination of Deduction for Certain Expenses
The TCJA eliminates several expenses from the list of those allowed to be deducted from either the individual tax payer’s gross, taxable wages or from the organization’s taxable income.
Transportation and Parking Fringe Benefits
Though qualified commuting expenses can still be provided to employees on a tax-free basis, theses fringe benefits no longer are tax-free to employers. Certain transportation and parking benefits, such as offering employees the option of a compensation reduction agreement for purchase of transit passes, providing vanpool services or operating a parking facility for use by staff, may continue to be provided as a benefit exempt from taxable wages. However, these fringe benefits no longer are deductible expenses for employers. Additionally, nonprofit employers will now have to pay unrelated business tax on those benefits. Organizations will need to assess the fiscal and human resources impact of such commuter benefit programs and considering restructuring into more tax-friendly forms.
Individuals can no longer deduct moving expenses from taxable wages, and employers cannot reimburse an employee’s moving expenses on a tax-free basis. However, if an employer treats the moving expenses as W-2 wages and thus taxable compensation, the employer can deduct the payment as a compensation expense. Since reimbursement of moving expenses is part of many healthcare agencies’ recruiting strategies and compensation packages for new hires, elimination of this as a deduction will have impact and could potentially affect the ability of some organizations, particularly those in rural communities, that already experience challenges in incentivizing physicians to relocate.
Elimination of Individual Health Insurance Mandate
The TCJA repeals the Affordable Care Act tax penalty for individual taxpayers who fail to have minimum required health insurance coverage. Elimination of this penalty is predicted to increase the number of uninsured Americans by several million, which in turn is expected to raise health insurance premiums. Increased numbers of uninsured patients burdens healthcare systems with higher volumes of uncompensated care and less healthy populations.
Tax on Highly Compensated Employees
Nonprofit hospitals and other organizations will have to pay a 21 percent tax on any compensation over $1 million paid to its top five highest-paid staff. Note that there is an exception for staff such as physicians who are providing direct care services.
Restructuring of Bond Financing
The TCJA repeals advance refunding bonds, which will make refinancing existing tax-exempt bonds more challenging and future capital projects likely more expensive. State and municipal bond financing also will be affected.
Changes in tax law do not change your need for quality healthcare professionals, though tax reforms may impact your recruiting and retention efforts. Adaptive Medical Partners, a premier physician recruiting firm, can help with your staffing needs.