The Cadillac Tax – A 40 Percent Employer Excise Tax
What’s the Cadillac Tax? This tax is simply an excise tax that’s scheduled to take effect in 2018 and will be charged to employers who offer a Cadillac group insurance plan to employees. If plan costs go above the premium thresholds of $10,200 for individual coverage and $27,500 for family coverage, the employer will be taxed 40 percent. This tax is expected to finance the Patient Protection and Affordable Care Act (ACA) an additional eight billion dollars in taxes (2018-2023).
Here’s how it’s supposed to work:
- Premium thresholds for high-cost plans are $10,200 for individual coverage and $27,500 for family coverage.
- Costs of the employer and employee contributions to healthcare Flexible Spending Accounts, Health Reimbursement Account and Health Savings Accounts are also being proposed to be part of the premium thresholds.
- These thresholds maybe updated in 2018 when final regulations are issued.
The thresholds may also be adjusted for:
- High-risk professions such as law enforcement and construction
- Group demographics, including age and gender
- Pre-65 retirees and individuals in high-risk professions; the threshold amounts are $11,850 for individual coverage and $30,950 for family coverage.
While the proposed Cadillac Tax will not take effect for three years – there are many union negotiations underway. Unions have typically negotiated generous health benefits with a high price tag. After the union negotiations have been settled, the contract maybe in place after the proposed Cadillac Tax takes place. With an excise tax of 40 percent, which is taxed on the employer and isn’t deductible, this is something to consider during the negotiation process for union employee health benefits. Further questions? Ask an ‘A’ team member for clarification.
- ACA Reporting Update Webinar
- The ACA’s Cadillac Tax on High Cost Health Coverage
- Healthcare Reform Updates Webpage
- Public Entity and Education Industry Page
- Public Entity and Education Blog
- Public Entity and Education Webinar Replays
- Public Entity and Education Library Resources
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