Independent Physicians Find Reasons to be Happy with GOP Tax Legislation
There are a number of healthcare industry groups that are not thrilled with the Republican tax bill. However, primary care physicians and dentists in independent practices may be able to find some reason to smile amid the 500+ page GOP Tax Legislation bill passed last week.
The cause for this positive reaction is because the bill dramatically reduces the personal income tax rate for owners of pass-through entities such as partnerships and sole proprietorships. It also provides a smaller tax break to owners of Subchapter S corporations, which is the way that many physician and dental practices are set up.
Details of the Bill for Physicians
Under the “Tax Cuts and Jobs Act”, the more formal name for the Republican tax bill signed by the president in December, owners of pass-through entities will receive a 20% deduction on their taxable income. That change will decrease their maximum effective tax rate from the current 39.6% (or 37% under the bill) to roughly 29.6%.
Physicians and other healthcare professionals will only qualify for this new break if they earn less than $415,000 a year for a married couple filing jointly, or $207,500 for a single filer. The change will most likely help some primary care physicians, but it won’t help to the two-physician family or specialists, whose incomes may be above that.
There’s no income limit on the tax break for other types of owners of pass-through entities who fall outside the bill’s definition of specified service trades or businesses, which includes medical providers. For example, individuals who are very high-income real estate developers in pass-through entities will receive the 20% deduction, but very high-income physicians will not.
How the Bill Impacts Medical Staff
Physicians and especially those who own medical practices should note that their lower-paid employees, such as nurses, medical assistants, and billing clerks, won’t get a benefit from the tax break.
This outcome has produced criticism from tax experts who say that the tax reductions are arbitrary and are drawn across haphazard lines. They say it’s hard to find the logic behind a law where high-income doctors and lower-income employees don’t get the lower tax rate but ultra-rich real estate developers do.
Even so, high-income physicians and other service providers still may discover ways to qualify for the lower pass-through rate if they restructure their medical practices. Some predict that
hospital systems may modify their arrangements with employed physicians and other healthcare professionals to enable them to take advantage of the lower pass-through tax rate.
The lower tax rate will should independent physicians in small towns. These medical practices may be their community’s only healthcare provider.