The U. S. House of Representatives passed H.R. 674 by a vote of 405-16 that prevents a planned 3% tax-withhold for many Medicare payments. The statute, originally passed in 2006 and delayed several times, called for all federal, state, and local government payments to those providing services or goods to have 3% of the payment withheld until the following tax year in an effort to increase tax compliance.  However, the original statute was overly broad and would have applied even to Medicare payments made to physicians.

Recently, the Internal Revenue Service released regulations that limited the burden on physicians by not applying the policy to current contracts, including Medicare provider agreements, or to payments under $10,000.  However, those changes still left physicians exposed if they were new Medicare providers, or if they modified their provider agreements by changing their participation status.  Additionally, because many carriers aggregate payments, the $10,000 threshold would have been exceeded in many cases.

The House action completely repeals this provision of law and eliminates the planned withholding.  The cost of this repeal was offset by a change in the definition of Medicare Adjusted Gross Income for the calculation of eligibility for Medicaid or insurance subsidies under the Affordable Care Act. 

The bill goes on to the Senate where a similar proposal fell three votes short of the needed 60 last week.