Not so fast…see you in 2020
The ACA imposes a 40 percent excise tax on high-cost group health coverage, also known as the “Cadillac tax.” This tax is intended to encourage companies to choose lower-cost health plans for their employees, but also to raise revenue to fund other ACA provisions.
What is the Cadillac Tax?
According to Cigna, On December 18, 2015, Congress passed and the President signed a two-year delay of the 40 percent excise tax on high-cost employer-sponsored health plans, also known as the “Cadillac Tax.” This delay was part of a year-end government funding package and changes the effective date from 2018 to 2020. While the tax was originally non-tax deductible, the December 2015 changes make it tax deductible for employers who pay it.
No regulations have been issued to date. In February and July 2015, the Internal Revenue Service (IRS) issued notices covering a number of issues concerning the Cadillac Tax, and requested comments on the possible approaches that could ultimately be incorporated into proposed regulations.
What does this mean for you?
This provision taxes the amount, if any, by which the monthly cost of an employee's applicable employer-sponsored health coverage exceeds the annual limitation (called the employee’s excess benefit). The tax amount for each employee’s coverage will be calculated by the employer and paid by the coverage provider who provided the coverage.
Although originally intended to take effect in 2013, the Cadillac tax was immediately delayed until 2018 following the ACA’s enactment. The new 2016 federal budget further delays implementation of this tax for an additional two years, until 2020.
The new law also:
- Removes a provision prohibiting the Cadillac tax from being deducted as a business expense; and
- Requires a study to be conducted on the age and gender adjustment to the annual limit.
There is some indication that this additional delay will lead to an eventual repeal of the Cadillac tax provision altogether. However, while several bills have been introduced into Congress to repeal this tax, President Obama has indicated that he will veto legislation repealing any ACA provision.
If you have questions on how the Cadillac tax provision may affect your organization, please email me at email@example.com or call me at 877-352-2121.