Updated: Sept. 2017
Section 4980I of the Internal Revenue Code of 1986, commonly referred to as the Cadillac Tax, is an excise tax on high cost employer-sponsored heath coverage. This tax was designed to slow the ever rising cost of healthcare, raise funds to pay for components of the Affordable Care Act, and to resolve unequal benefits from excluding insurance coverage from taxes.
This tax would be imposed on employers who offer health insurance plans that exceed limits of $10,800 for individuals or $29,500 for families (these thresholds will adjust to inflation each following year). The 40% tax applies to the amount above the cost threshold and would be tax deductible. It was originally scheduled to to take effect in 2018, but it has been delayed until 2020.
Conversations in 2017 have threatened to replace the Affordable Care Act, which would prevent the Cadillac Tax from becoming effective. However, the efforts to repeal the Affordable Care Act have dissolved and the Cadillac Tax is back in discussion and set for 2020 unless Congress addresses it.
What does this mean for me as an employer? The delay of the Cadillac Tax gives employers extra time to analyze their current health insurance plans and possibly remodel them in anticipation for the 2020 effective date. Keep an eye out for what may happen with the Affordable Care Act in the coming months. If it’s replaced, then this tax becomes a moot point. If it stays in effect, you will want to prepare for this new tax.