On December 15, 2015, Congress approved a two-year delay of the Cadillac Tax. The “tax extender” package and provision was signed by the President, making it official. The Cadillac Tax effective date will move from 2018 to 2020. The delay was included in a year-end tax and spending package that also makes the Cadillac Tax tax-deductible for employers who pay it.
The Cadillac Tax is a 40% excise tax originally scheduled to take effect in 2018 to reduce health care usage and costs by encouraging employers to offer plans that are cost-effective, and engage employees in sharing in the cost of care. It is a 40% tax on employers that provide high-cost health benefits to their employees.
The 40% tax is on the cost that exceeds a threshold of the total premiums paid by both employers and employees, plus:
- Employer and employee contributions to Health Care FSA, HRA and HSA
- The cost of Employee Assistance Plans with counselling benefits, onsite medical clinics and wellness programs
- Retiree coverage
- Hospital indemnity or other fixed indemnity insurance
- Federal / State / Local government-sponsored plans for its employees
- Coverage for a specified disease or illness
- Multi-employer plans
These thresholds (originally set for $10,200 for single coverage and $27,500 for family coverage in 2018) will be updated for 2020 when final regulations are issued, and then indexed for inflation in future years.
For insured plans, the employer calculates the tax and the insurers pay. For self-funded plans, the employer calculates and pays the tax. As noted above, another change is that the Cadillac Tax will now be tax-deductible.
Coverages exempt from the Cadillac Tax include insured or self-funded stand-alone dental plans, insured or self-funded stand-alone vision plans, accident only coverage, disability benefits, worker’s compensation, liability insurance, and long-term care insurance benefits.
More information can be found at: