Scheduled to take effect in 2018, the “Cadillac Tax” is a 40% non-deductible excise tax on employer-sponsored health coverage that provides high-cost benefits.
On February 23, 2015, the Internal Revenue Service (IRS) issued a notice covering a number of issues concerning the Cadillac Tax, and requested comments on the possible approaches that could ultimately be incorporated into proposed regulations. No regulations have been issued to date.
|What it is/fee duration||Permanent, non-deductible, annual tax beginning in 2018 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||Cadillac Tax payments are not 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
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.