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What You Need to Know about the ACA’s ‘Cadillac Tax’

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The Cadillac brand is synonymous with American-made luxury and now, thanks to the Affordable Care Act (ACA), it is commonly identified as an excise tax that employers offering high-cost insurance plans are likely to face beginning in 2018.

The “Cadillac tax” targets health plans that provide workers the most generous level of benefits, with little cost-sharing for employees. Proponents argue that such plans encourage the overuse of care, which would ultimately raise the cost of health care overall. The Cadillac tax seeks to eliminate this excess spending, while also providing a source of funding for the expansion of health coverage under the ACA.

The tax already impacts employers’ group health plans, causing many organizations to prepare for the implementation of the Cadillac tax. Below is a complete breakdown of all the tax entails and the ways it may impact employers’ group health plans, including Flexible Spending Accounts (FSA).

Breaking Down the Cadillac Tax

The ACA added Section 4980I to the Internal Revenue Code, which imposes a 40 percent excise tax on high-cost insurance plans beginning in 2018. Employers who sponsor a group health plan are subject to the Cadillac tax and will be taxed on any excess benefit provided to an employee. Excess benefit is defined as the excess of the aggregate cost of the applicable coverage in which the employee is enrolled for the month over the applicable dollar limit for the employee during the month. In 2018, the baseline dollar limits are $10,200 for self-only coverage and $27,500 for other than self-only coverage.

After 2018, the baseline dollar limits will be determined by a cost of living adjustment. Certain exceptions apply, including increased dollar-limit amounts for employees engaged in certain high-risk jobs.

Group Health Plans Impacted, FSAs in the Spotlight

To be applicable for the tax, the group health plan must be made available to an employee by an employer and excludable from the employee’s gross income. Essentially, the tax threshold includes not just the value of premiums, but also any additional benefit offered by employers.

Some examples of applicable coverage includes major medical plans, health reimbursement arrangements, FSAs, Archer Medical Savings Accounts (MSA), health savings account (HAS) contributions, governmental plans, retiree coverage, multiemployer plans and specified disease, hospital indemnity or other fixed-indemnity insurance when premiums are paid on a pre-tax basis.

Employers offering FSAs may be more apt to triggering the tax, as contributions made will count toward the tax calculation. This includes both portions made by employees and their employers. For 2015, the maximum contribution amount by law for FSAs is $2,550 a year, which could push into the Cadillac tax’s threshold.

Based on research by The Henry J. Kaiser Family Foundation, if FSAs remain part of the tax, nearly 26 percent of employers would have at least one health plan that surpasses the individual threshold in 2018 and 42 percent in 2028. However, if FSAs are taken out of the equation, then only 16 percent would exceed the threshold in 2018.

Plans Not Included in Threshold Calculations

Some plans, such as accident-only coverage plans, disability insurance, liability insurance, long-term-care coverage and stand-alone dental and vision are excludable and not subject to the Cadillac tax.

Responsible Parties and Requirements

The health insurance issuer is responsible for paying the Cadillac tax when the applicable coverage is provided under an insured plan. However, the employer is subject to the payment if the applicable coverage consists of coverage under which the employer makes contributions to an HSA or Archer MSA. In the case of any other applicable coverage, the person who administers the plan is responsible for payment of the tax.

Employers will be responsible for calculating the Cadillac tax, as well as W-2 reporting requirements on costs of applicable coverage provided. Employers should be knowledgeable of the plans their employees are enrolled in to determine what amounts need to be included in the aggregate cost of applicable coverage.

Although currently there is growing bipartisan support for the repeal of the Cadillac tax, employers should remain attentive to future developments by following the IRS for anticipated rules that will offer further guidance.

The content of this blog is intended to keep interested parties informed of legal and industry developments for educational purposes only.  It is not intended as legal opinion or tax advice and should not be regarded as a substitute for legal or tax advice.


Tiffany Hill

by Tiffany Hill


Author Bio: Tiffany Hill is an experienced employment and labor law attorney who currently serves as Paycom’s HR Legal Advisor. She maintains professional memberships in the Oklahoma, Ohio and Louisiana Bar Associations and is an active member with the Society for Human Resource Management and the National Association of Professional Women. In addition to her Juris Doctorate, Tiffany holds degrees in Civil Law and Political Science. In her spare time, Tiffany enjoys spending time with her three young sons and cultivating aspiring leaders through mentorship programs.

ACA ‘Cadillac Tax’ Delayed to 2022

ACA ‘Cadillac Tax’ Delayed to 2022

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The short-term spending bill that ended the government shutdown on Jan. 22 included a small provision that again delayed the Affordable Care Act’s (ACA) “Cadillac tax,” now to 2022.

So nicknamed because it targets employer-sponsored health plans with the most generous level of benefits, the Cadillac tax originally was to take effect in 2018. In 2015, the effective date was pushed to 2020, and now the new bill pushes the effective date two additional years into the future.

When – or if – the Cadillac tax goes into effect, it will impose a 40% excise on the cost of employer-sponsored health coverage exceeding a certain dollar value per employee. The dollar value would have been $10,200 for individual coverage and $27,500 for family coverage in 2018, had the tax not been delayed. The law calls for the amount to be adjusted annually with growth in the consumer price index.

How does this affect Employers?

Employers do not have to contend with the tax for an additional two years. The IRS has not yet issued regulations addressing implementation; with this additional delay, the agency likely will not do so in the near future.

Disclaimer: This blog includes general information about legal issues and developments in the law. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal problems.

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Posted in ACA, Blog, Compliance, Featured

Erin Maxwell

by Erin Maxwell


Author Bio: As a compliance attorney for Paycom, Erin Maxwell monitors legal and regulatory changes at the state and federal level, focusing on health and employee benefits laws, to ensure the Paycom system is updated accordingly. She previously served as assistant general counsel at Asset Servicing Group in Oklahoma City. She holds a bachelor’s degree from the University of Central Oklahoma and a J.D. from the University of Oklahoma. Outside of work, Maxwell enjoys politics, historical mysteries and spending time with her family.

Deadline Extended

Employer Deadline Extended for Furnishing 2017 ACA Forms

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Distribution of 2017 Affordable Care Act (ACA) Forms 1095-B or -C to your employees has been extended.

As issued in Notice 2018-06, the IRS has extended the deadline from Jan. 31 to March 2. (However, the deadline to provide Forms W-2 and 1099 to employees and contract workers remains as Jan. 31.)

Filing deadlines unchanged

While the deadline to furnish forms was extended, the filing deadlines remain the same: Feb. 28 for paper forms, and April 2 for electronic forms.

IRS Notice 2018-06 emphasizes that employers who do not comply with the due dates for furnishing or filing are subject to penalties under sections 6722 or 6721.

Good-faith transition relief extended

The IRS also announced the extension of good-faith transition relief. This may allow an employer to avoid some penalties if it can show that it made good-faith efforts to comply with the information reporting requirements for 2017.

This relief applies only to incorrect and incomplete information reported on the ACA forms, and not to a failure to file or furnish the forms in a timely manner. Additionally, the IRS stated it does not anticipate extending either the good-faith transition relief or the furnishing deadline in future years.

Contact a trusted tax professional if you have questions on how this may affect your business specifically.

Click here to read more about how the ACA is affect by the new Tax Cuts and Jobs Act.

Disclaimer: This blog includes general information about legal issues and developments in the law. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal problems.

Tags: , , , ,
Posted in ACA, Blog, Compliance, Featured

Erin Maxwell

by Erin Maxwell


Author Bio: As a compliance attorney for Paycom, Erin Maxwell monitors legal and regulatory changes at the state and federal level, focusing on health and employee benefits laws, to ensure the Paycom system is updated accordingly. She previously served as assistant general counsel at Asset Servicing Group in Oklahoma City. She holds a bachelor’s degree from the University of Central Oklahoma and a J.D. from the University of Oklahoma. Outside of work, Maxwell enjoys politics, historical mysteries and spending time with her family.

Employers Unaffected by ACA Changes in New Tax Law

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On December 22, President Trump signed the Tax Cuts and Jobs Act. The bill includes a provision that reduces the penalty for not complying with the Affordable Care Act’s (ACA) individual mandate to $0, effectively removing the penalty for individuals who do not have health insurance coverage after the effective date of Jan. 1, 2019.

However, this update will not impact employers, since the law does not remove the employer mandate (the requirement that large employers offer health insurance coverage to their full-time employees or pay a penalty) or the associated employer reporting requirements. Large employers subject to the mandate still face penalties if they fail to comply with either, and the IRS has begun sending out notices with preliminary assessments of the employer shared responsibility penalty for tax year 2015.

Employers subject to the employer mandate should continue to comply and be prepared to file Forms 1094 and 1095 with the IRS in accordance with the normal deadlines.

For the 2017 tax year, the deadlines to provide Forms 1095-C to employees is Jan. 31, 2018.  The deadline to file Forms 1094-C and 1095-C with the IRS is Feb. 28, 2018 if filing paper forms, and April 2, 2018, if filing electronically.

Disclaimer: This blog includes general information about legal issues and developments in the law. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal problems.

Posted in ACA, Blog, Compliance, Featured

Erin Maxwell

by Erin Maxwell


Author Bio: As a compliance attorney for Paycom, Erin Maxwell monitors legal and regulatory changes at the state and federal level, focusing on health and employee benefits laws, to ensure the Paycom system is updated accordingly. She previously served as assistant general counsel at Asset Servicing Group in Oklahoma City. She holds a bachelor’s degree from the University of Central Oklahoma and a J.D. from the University of Oklahoma. Outside of work, Maxwell enjoys politics, historical mysteries and spending time with her family.

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