ACA Reform – Cadillac Tax Summary

Beginning in the taxable year of 2018, the Affordable Care Act (ACA) imposes a 40% excise tax on high-cost group health coverage. This tax is known as the “Cadillac Tax,” and is intended to encourage companies to choose lower-cost health plans for their employees. The law is designed to tax the employer on the annual cost of an employee's applicable employer-sponsored health coverage that exceeds the annual limitation. The employer is responsible to report the tax amount to the IRS and the coverage provider, as well as paying the applicable tax for each enrollee.

In 2018, when the tax is imposed, the initial dollar limit amount for purposes of calculating an employee’s excess benefit is $10,200 for individual coverage, and $27,500 for other than individual coverage. Any amount above these thresholds will be the portion that will be subject to tax. The calculated amount is the total annual premium cost, not just the employee’s or employer’s portion.

Total cost includes premiums paid by employers and employees PLUS employer and employee contributions to HSA, FSA, and HRA accounts. If employees make salary reduction contributions to an HSA, or other savings plan, through the employer's cafeteria plan, those contributions should be counted toward the cost of the coverage.

As a result of Health Care Reform, the IRS is rolling out the Cadillac Tax in 2018. The tax is levied on excess costs, above a stated threshold, on the cost of group health coverage. The law is intended to encourage employers to offer lower cost health plans. The employer is responsible to calculate the tax, report the amounts to both the coverage provider and IRS, and pay the tax.

We can help! We can help you and your company decide on health plans which can avoid the tax, all while keeping the level of quality in your overall employee benefit plans. If you are interested in hearing more about your options, or have questions relating to other insurance or employee benefits, please feel free to reach out to the professionals at Associated Financial Consultants, an Associated Group company at 954-983-5600.