40% excise tax
On December 18, 2015, 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 year-end government funding package and changes the effective date from 2018 to 2020. While the tax was originally non-tax deductible, the December 2015 changes make it tax deductible for employers who pay it.
No regulations have been issued to date. 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.
|What it is/fee duration||Permanent, annual tax beginning in 2020 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 the December 2015 changes, Cadillac Tax payments will be deductible for federal tax purposes.|
|Applicable types of coverage||
|Excluded types of coverage||
*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 2020.
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
These charts show how the tax increases as the plan’s cost increases.