U.S. Senate repeals the net investment income tax

December 8, 2015

On December 3, 2015, the U.S. Senate, by a vote of 52 to 47, approved a  package, wrapped inside a budget reconciliation bill, that would repeal large portions of the Affordable Care Act  (ACA), also known as Obamacare, and would place a moratorium on federal Medicaid funding for Planned Parenthood.  Included in the Senate’s  version of its bill, and found in Section 220 thereof, is a repeal of chapter 2A of the Internal Revenue Code (the Code) applicable to taxable years beginning after December 31, 2015.

When ACA was enacted into law, it created a new Section 1411 under chapter 2A of the Code, which generally imposes a 3.8 percent tax on the lesser of "net investment income" or the excess of modified adjusted gross income over a "threshold amount".  This threshold amount is generally US$250,000 for taxpayers filing a joint return; US$125,000 for married taxpayers filing a separate return and US$200,000 in all other cases.  This additional tax, referred to as the net investment income tax or “NIIT”, applies to taxable years beginning after December 31, 2012.

The House of Representative passed a similar initiative to repeal portions of ACA ,contained in  H.R. 3762, Restoring Americans’ Healthcare Freedom Reconciliation Act on October 23, 2015 by a vote of 240 – 189, but in its version there is no reference to the repeal of chapter 2A of the Code.

The reconciliation bill has now been sent to the House of Representative for review.  Even assuming, however, that it will  be passed by Congress with provision for the repeal of chapter 2A of the Code, it is unlikely to become law. This is due to  the fact that it is under threat of veto by President Obama and is not expected to garner the support of more than 60 Senators, as required to override a Presidential veto.

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