Cadillac tax on employer health plans delayed from 2018 to 2020
TAX ALERT |
On Dec. 18, 2015, President Obama signed legislation that delays the implementation of the so-called Cadillac tax from 2018 to 2020.
The Cadillac tax is an excise tax on high-cost health plans and was created under the Affordable Care Act (ACA). Although the ACA became law in 2010, the Cadillac tax was set to apply to health plans starting in 2018.
The Cadillac tax is a 40 percent excise tax on the cost of employee health coverage that exceeds certain annual thresholds:
- $10,200 for individual coverage
- $27,500 for family coverage
These thresholds are adjustable for inflation plus other factors such as age, gender, high risk professions and retiree status.
The cost of health coverage includes employer and employee contributions for major medical coverage, healthcare flexible spending arrangements (FSAs), health reimbursement arrangements (HRAs), and health savings accounts (HSAs). Other benefits such as employee assistance programs (EAPs) and onsite medical clinics may also need to be included in the calculation.
The employer is responsible for calculating the cost of the health coverage. However, the employer is not always the party responsible for paying the tax. For self-insured plans, the tax is payable by either the employer or the plan administrator. For fully-insured plans, the tax is payable by the insurance company so the employer must notify the insurer of the amount due. If an employee is enrolled in a combination of fully-insured and self-insured benefits, the insurer and the employer or plan administrator will pay their share of the tax in proportion to the benefits each provided. The penalty is payable annually and is non-deductible.
The Cadillac tax was added to the ACA as a means to raise revenue to fund other provisions of the act and to discourage the use of high-cost health plans. However, during the past five years, there has been a growing sentiment within Congress to repeal the Cadillac tax so this two year delay may be the first step toward that goal.