Excise “Cadillac” tax
This 40% tax on high-cost employer plans has been delayed from 2018 to 2022.
Excise “Cadillac” tax
This 40% tax on high-cost employer medical plans was intended to reduce preferred treatment of employer-sponsored health plans and reduce excess health care spending.
This tax has been delayed from the original effective date of 2018 to 2022. No regulations have been issued to date, and there are many open issues that need to be addressed before the tax takes effect.
- 40% excise tax on high-cost employer medical plans
- Original 2018 effective date delayed until 2022
- $10,200 individual/$27,500 family (2018 amounts to be indexed and anticipated to increase up to 10% by 2022)
- Employers are responsible for calculating the tax
- Insurers are responsible for paying the tax for insured plans
- "The person who administers the plan benefits" is responsible for paying the tax for self-funded plans
40% Excise Tax
Get up to speed on the latest developments and benefit strategy considerations about the 40% Excise Tax, also known as the “Cadillac Tax” in this podcast.
Alliance to Fight the 40
Many employers, unions, insurers and health insurance industry groups would like to see this tax repealed or modified.
The Alliance is a group of stakeholders seeking to repeal the 40% Cadillac Tax.
Excise “Cadillac” Tax Details
On January 22, 2018, Congress passed and the President signed a two-year delay of the 40 percent excise tax on high-cost employer-sponsored health plans, also known as the “Cadillac Tax.” This delay was part of a short-term federal spending bill and changes the effective date from 2020 to 2022. The tax was delayed once before through the Consolidated Appropriations Act of 2016.
In February and July 2015, the Internal Revenue Service (IRS) issued notices covering a number of issues concerning the Cadillac Tax, and requested comments on the possible approaches that could ultimately be incorporated into proposed regulations. While the tax was originally non-tax deductible, the December 2015 changes suggest it will be tax deductible for employers who pay it.
|What it is/fee duration||Permanent, annual tax beginning in 2022 on high-cost employer-sponsored health coverage|
|Who calculates and pays||
|How a group health plan’s cost is determined||
|How the tax will be paid||Forms and instructions for paying the tax are not yet available|
|Tax implications||Based on a December 2015 change, Cadillac Tax payments are expected to be deductible for federal tax purposes|
|Types of coverage affected||
* As indicated by IRS notice issued on February 23, 2015 and subject to future regulatory clarification.
How it works: Examples based on current threshold amounts
Note: These threshold amounts will be indexed before the tax takes effect in 2022.
A $12,000 individual plan would pay an excise tax of $720 per covered employee:
$12,000 – $10,200 = $1,800 above the $10,200 threshold
$1,800 x 40% = $720
A $32,000 family plan would pay an excise tax of $1,800 per covered employee:
$32,000 – $27,500 = $4,500 above the $27,500 threshold
$4,500 x 40% = $1,800
View the Printer-Friendly Fact Sheet
These charts show how the tax increases as the plan’s cost increases