New Legislation Delays 'Cadillac Tax' on Employer-Sponsored Health Coverage and Equalizes Commuter Benefit Tax BreaksPublications - Client Alert | December 21, 2015
On December 18, President Obama signed the Consolidated Appropriations Act, 2016 (the Act) into law. The Act amends the Patient Protection and Affordable Care Act (the ACA) to delay the effective date of the so-called “Cadillac tax” to 2020. The Act also restored tax parity between public transit and parking benefits.
The ACA was scheduled to impose a 40% tax on “excess” health insurance in 2018. This tax on excess health benefits is commonly referred to as the “Cadillac tax.” The excess benefit is generally the aggregate cost of employer-sponsored coverage that exceeds $10,200 for self-only coverage or $27,500 for other than self-only coverage. If the health coverage is fully insured, the health insurance issuer is liable for the tax. If the coverage is self-insured, the person that administers the plan benefits is liable for the tax. This may be the employer or the third-party administrator.
In 2015, the maximum monthly tax exclusion for money spent on public transit passes and vanpool benefits fell from $250 to $130, while the monthly exclusion for qualified parking benefits remained at $250. This created a $120 monthly difference in commuter benefit limits.
The Act delays the Cadillac tax to taxable years beginning after December 31, 2019. The Act also provides that the Cadillac tax is deductible, allowing the person who pays the Cadillac tax to deduct it for federal income tax purposes.
Effective January 1, 2016, the monthly tax-exclusion for parking benefits will increase from $250 to $255. The monthly tax-exclusion for public transit benefits will increase from $130 to $255. In addition, the Act retroactively raises the 2015 public transit benefit limit to $250.
Although the effective date of the Cadillac tax has been delayed, employers should already be considering if any changes to their group health plan designs are needed in order to avoid the Cadillac tax’s application. It is possible that Congress could further amend the Cadillac tax prior to the new effective date, so employers should also continue to monitor legislative developments.
If you have any questions about the Cadillac tax or commuter benefit programs, please contact your Kutak Rock attorney or a member of the Employee Benefits practice group listed below.