The short-term spending bill that ended the government shut down on January 22nd included a small provision that delayed the so-called “Affordable Care Act (ACA) Cadillac Tax” to 2022. The tax, nicknamed the Cadillac Tax because it targets employer-sponsored health plans that provide the most generous amounts of benefits, was originally slated to take effect in 2018. Then, in 2015, the effective date was changed to 2020. Now, the new bill pushes the effective date further into the future by 2 more years.
The provision to postpone the Cadillac Tax received support from both political parties. The tax, which was a part of the ACA, was designed to help fund benefits to the uninsured. The tax originally was targeted only to the “very rich” health plans, but many employers say it would affect moderately funded health benefit packages as well.
The Cadillac Tax imposes a 40% excise on the cost of employer-sponsored health coverage that exceeds a certain dollar amount for each employee. For example, if the tax had gone into effect in 2018, it would have been applied if individual coverage exceeded $10,200 or family coverage exceeded $27,500. The law provides for an annual adjustment according to the consumer price index.
How does this new ruling affect employers? At this time, employers do not need to be concerned about the tax until 2022. The IRS has not issued instructions that address the implementation of this tax. Since the 2 year delay was passed, the agency is not likely to issue regulations that pertain to the tax anytime in the near future.
There is wide bipartisan support for repealing the so-called Cadillac Tax. However, there is no consensus at this time on how to replace the lost revenue in the federal budget should the tax be fully repealed. Most tax experts predict that the tax will ever fully take effect, employers have expressed concern about the lengthy process that would be required whenever the effective date gets close.
Employer healthcare benefit packages play an important role in helping to support a healthy workforce in America. Many companies are taking an innovative approach by offering creative programs designed to meet the unique needs of their company’s employees and their families. If implemented, employers have expressed concerns that the Cadillac Tax will affect their ability to sustain such vital benefit programs. According to the U.S. Census Bureau, 178 million people received employer-sponsored health care benefits in 2016.
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