Senate to Vote on Medicare Tax Withholding Law

The U.S. Senate is expected to vote before Dec. 31 on a U.S. House-approved measure to repeal 3 percent withholdings of Medicare payments from physician groups and hospitals intended to create an insurance fund to address tax noncompliance .

Unless repealed, the 3 percent withholding will take effect January 2013 and reduce federal revenues by $11.2 billion between 2012-21, according to the Joint Committee on Taxation.

The 3 percent withholding on some payments to government contractors stemmed from the Tax Increase Prevention and Reconciliation Act of 2005 that scheduled the withholdings to take effect in January 2013.

The U.S. House of Representatives approved to repeal the bill on Oct. 27 by a vote of 405-16.

Rep. Alcee Hastings, D-Fla., opposed the bill on the basis that the sponsors combined the repeal with HR 2576, a bill that would modify income requirements for health care.

The modified income requirements would save nearly $13 billion over the 2012-2021 period, the Congressional Budget Office reported.

The modification would make health care unaffordable for 500,000 Americans, leaving them with no choice but to drop their coverage, Hastings said.

The pairing of these two bills is not in my considered opinion an appropriate use of our nation's tax code and in my opinion does nothing to create jobs, Hastings said.

Congress passed the original withholding law, prompted by hospitals that neglected to pay their share of taxes.

The health care industry, as well as the Obama administration, called to repeal the tax withholding law before it begins to take effect. The additional tax would hit hospitals and physician groups hard, said Jay Packer, an attorney who works for Marina, a company that specializes in coding and billing for large health care clients.

While 3 percent may not sound like a lot to some, it is significant for these providers who have already relied on that money being received, he said.

The Obama administration said in a statement that targeting noncompliant organizations is a better strategy than imposing the burden of a blanket withholding.

The impact of a mandatory 3 percent withholding of Medicare payments would trickle down to companies like Marina that support the health care industry.

There would be many other effects downstream, Packer added.