Cadillac Tax – Delayed

In December, the Consolidated Appropriations Act, 2016 was signed into law which, amongst other provisions, effectively delayed the excise tax on high-cost health coverage (also known as the “Cadillac Tax”) until January 1, 2020. In addition, the law made the excise tax deductible and provides for a study to determine whether appropriate age and gender benchmarks are being used to determine the Cadillac tax threshold adjustments.

Background
The tax applies to the amount by which the monthly cost of employer-sponsored coverage exceeds an annual threshold amount ($10,200 for self-only coverage / $27,500 for coverage other than self-only). The cost of applicable coverage refers to coverage in which the employee is actually enrolled.

The employer will be responsible for calculating the excess amount, if any, and reporting such amounts to the IRS and to applicable coverage providers. The coverage provider is then responsible for actually paying the tax. If the coverage is insured, the “coverage provider” responsible for paying the tax is the insurer. For other coverage, the “coverage provider” may be the employer or “the person that administers the plan benefits.” Either way, the tax will generally be passed back to employers. It is expected at this time that the taxes will be paid using Form 720, like the PCORI fees.

The IRS provided two separate notices during 2015 providing some insight into how various aspects of the administration are expected to be handled and also requesting comments. We are still waiting on formal regulations to better understand exactly how the tax will be administered in regards to which coverage will be subject to the tax, how the cost of coverage will be calculated, and how the threshold amounts may be adjusted.

Changes to the Cadillac Tax

  • Effective Date Delayed – The effective date of the Cadillac Tax was delayed until at least January 1, 2020 (previously set to be effective in 2018).
  • Tax is Deductible – The Cadillac Tax is now considered deductible. In other words, any amounts that employers end up paying toward the tax will be tax-deductible expenses, which may lessen the potential impact of the tax for employers
  • Threshold Adjustments – Regulations currently provide for a possible age and gender adjustment to the threshold amounts. A provision was made for the U.S. comptroller general and the National Association of Insurance Commissioners to study whether the “suitable” age and gender benchmarks to determine the “Cadillac” tax thresholds are in place.

Summary

The Cadillac Tax, which has been looming over health plans since the ACA was signed into law, has not gone away, but it has been delayed for at least another couple of years. This gives employers who have been considering measures to reduce their plan’s cost of coverage some more time to properly plan, implement and communicate these changes. Hopefully during this time the government will provide us with additional guidance in regards to methods of calculating and reporting the tax. In the meantime, we will continue to work with you to determine what plan changes make the best sense for your company..

As always, should you have any questions, please contact your Parker, Smith & Feek Benefits Team.

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

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The views and opinions expressed within are those of the author(s) and do not necessarily reflect the official policy or position of Parker, Smith & Feek. While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it.