Legislation Increasing 831(b) Premium Limitation Introduced

Legislation has been introduced in both the US House of Representatives and the US Senate to increase the premium limitation on small insurers for federal tax considerations. Representative Erik Paulsen, Minnesota (R), and Representative Ron Kind, Wisconsin (D), are cosponsoring H.R. 1788, and Senator Orrin Hatch, Utah (R), is sponsoring S.B. 905.

Both bills would increase the allowable maximum premium to $2.2 million for 831(b) captives. The Senate version of the proposed legislation provides an inflation adjustment rounded to the lowest $50,000 after calendar year 2015. The proposed House version also provides an inflation adjustment rounded to the next $1,000 effective after December 2014.

S.B. 905 has other differences. It requires a study by the secretary of the Treasury on the abuse of captive insurance companies for estate planning purposes. The study is to be completed by February 11, 2016, and to include legislative recommendations for dealing with abuses. The Senate proposal also increases the penalties on Medicare providers and suppliers that have outstanding federal employment and income tax liability. This section is intended to offset revenue loss by increasing the 831(b) premium limitation.

The current $1.2 million ceiling on net or direct written premiums has not been adjusted since 1986. Those property and casualty insurers electing the 831(b) tax option are taxed only on taxable investment income.

The Senate legislation was submitted to the Finance Committee, which favorably reported the legislation in the previous session of Congress. The House bill was referred to the Ways and Means Committee.