In December 2015, Congress passed the Protecting Americans from Tax Hikes (PATH) Act of 2015 which, in part, suspended the 2.3% Medical Device Excise Tax for the 2016 and 2017 tax years. Unless the tax gets permanently repealed, it is set to go back into effect starting January 1, 2018.
The tax went into effect January 1, 2013 as part of the Patient Protection and Affordable Care Act – more commonly referred to as Obamacare – and many estimated it would raise roughly $30 billion over a 10-year period to help offset the cost of the Affordable Care Act. The tax is levied against the manufacturers or importers of medical devices. It is based on the sales price of the device being sold and is due quarterly. A medical device is defined as any product that is used in the diagnosis of a disease or intended to affect the structure or function of the human body, with certain exemptions provided. Many speculate that the future of the tax depends largely on who is the next president.
Other business-related provisions included in the PATH Act include a permanent expansion of the $500,000 Section 179 limit. Thus, business owners who purchase fixed assets or qualifying software can fully expense the cost of the equipment up to the $500,000 limitation or net income in the current year instead of depreciating it over the life of the asset. Furthermore, bonus depreciation will remain at 50% until December 31, 2017. After that, it will be reduced to 40% for the 2018 tax year before finally being reduced to 30% for the 2019 tax year. Similar to Section 179, bonus depreciation lets a business owner deduct a portion of the purchase price of fixed assets as an expense in the current year instead of depreciating the full cost of the asset over its tax life. The differences between the two methods of accelerated depreciation above is that bonus depreciation is not subject to income or dollar limitations but can only be taken on new assets. Under Section 179, a business can expense used fixed assets as long as the asset is new to the business. Lastly, under the PATH Act, the research and development credit which has expired and been renewed 16 times has finally been made permanent.