One of the important aspects of working in HR is not only knowing the current laws, but knowing the upcoming changes to the current laws. Case in point is the upcoming excise tax on high cost employer-sponsored health coverage, commonly referred to as the Cadillac Tax, which will go into effect in 2018.
What Exactly Is It?
The Cadillac Tax is part of the Affordable Care Act (Obamacare) and will be imposed if an employee is covered under an “applicable employer-sponsored coverage” at any point during the taxable period AND if there is an excess benefit of coverage.
Practically, this means that health plans that cost more than $10,200 for an individual or $27,500 for a family plan will be subject to the tax, which is 40% of the excess benefit.
For example, if an individual’s health plan costs $11,000, the tax is will be on the excess amount – $800. 40% of $800 is $320 – a hefty amount – and that’s just for one individual.
Exceptions to this are in the case of an individual who is a retiree or an individual who participates in an employer-sponsored plan in which the majority of employees covered practice a high-risk profession/repair or install electrical or telecommunications lines.
In these cases, the threshold amount is increased by $1,650 for individual coverage and $3,450 for family coverage.
What’s the purpose of the tax?
The purpose of the tax is to prevent overly-rich employee health plans (so that employees/employers don’t end up paying for benefits that they don’t really need), and to help finance the expansion of health coverage under the Patient Protection and Affordable Care Act.
Whose responsibility is it to calculate the tax?
It is the employer’s responsibility to calculate the excess benefit for each taxable period and to notify the Secretary of Treasury and each coverage provider of the amount. In some cases, the insurance company needs to pay the tax, and in other cases, the employer needs to pay.
IMPORTANT: The forms for submitting the taxable amount have not yet been created by the IRS, which means you need to keep your eyes and ears open for future instructions on how to submit the tax. Of course, we at Corporate Financial will also do our best to keep you updated about the latest and most current news.
For and Against
If you type “Cadillac Tax” into Google, you will come up with a whole slew of articles, both for and against. The New York Times recently published an article extolling the virtues of such a plan, while last week, The Hill reported that senators Harry Reid and Nancy Pelosi are feverishly working behind the scenes to repeal it.
Whatever your opinion is, you will still need to comply with it if it is passed. If you are not sure if your company’s health plan will be subject to the Cadillac Tax or if you have any other questions, don’t hesitate to contact us at Corporate Financial.