In last week’s blog article, we discussed that business owners have been gearing up in preparation for the impending Cadillac Tax. But on Friday, December 18, employers got an unexpected early Christmas present from the federal government when Congress passed, and President Obama signed, a $1.8 trillion spending and tax cut package that funds the government through next October and extends many tax breaks that were about to expire.
Inside this package is a hidden treasure for employers: A two-year delay of the Cadillac Tax and Medical Device Tax.
The delay of the Cadillac Tax is effective for 2018 and 2019, which means the tax will now go into effect beginning in January 2020 barring any further legislative maneuvering or repeal efforts. The new law also makes the tax permanently deductible for employers, a nice perk when tax time comes around. The 2.3 percent tax on medical devices in effect since January 2013 has also been suspended until December 31, 2017.
And there are even more goodies in this package. The bill also includes a one-year delay of the Health Insurance Tax (HIT), a tax on all health insurance companies based on their net premiums. Opponents of the tax argue, and the Congressional Budget Office (CBO) has concurred, that the HIT would undoubtedly be passed on to employers in the form of higher premiums for those with private coverage.
IRS contributes much needed clarity to the holiday package.
The Affordable Care Act (ACA) has been a whirlwind of new rules and regulations, and with the program still a work in progress, many details have been languishing in a cloud of gray. With the recent release of Notice 2015-87, the Treasury Department and the IRS are hoping to clear the air with updated guidance on many of the market reforms and provisions of the ACA, including the increase in penalties for employers who don’t offer Minimum Essential Coverage (MEC) (increasing to $2,080) or Affordable Coverage (increasing to $3,120). For 2016, increases were slated at $2,160 for Penalty A and $3,240 for Penalty B.
The notice also provides clarification and updated guidance on a host of other ACA provisions, including:
- The employer mandate and employer status for the mandate
- Application of the mandate for government entities
- Information reporting provisions for applicable large employers
- Health savings accounts for those eligible for Veterans Affairs benefits
- Application of the COBRA continuation coverage rules to flexible spending account carryover
- The application of the 9.5 percent affordability threshold
- Integrated health reimbursement arrangements requirements
- Employer reimbursements for individual health plans
What’s next for employers?
While Congress may have merely kicked the proverbial can down the road on the Cadillac Tax, the Medical Device Tax, and the Health Insurance Tax, employers can breathe at least a temporary sigh of relief and concentrate on other issues for the immediate future. The battle to fully repeal the Cadillac Tax will continue, and only time will tell what will become of it and other provisions of the ACA.
To stay up to date on the ever-evolving Affordable Care Act and group benefits cost control strategies, subscribe to the BeaconPath blog. Merry Christmas and Happy New Year from all of us here at BeaconPath!