Cadillac Tax Delayed & Changes Transportation Limits

Cadillac Tax Delayed and Permanent Changes Made
to Transportation Accounts
Employers should not be pressured to make near-term changes especially in regards to FSA and HSA benefits, and businesses have additional time to advocate further reforms.On Friday, December 18, 2015, President Obama signed an omnibus appropriations’ bill that included two important provisions related to the excise tax on high-cost employer sponsored health plans, commonly known as the Cadillac Tax. The implementation of the tax is now delayed by two years and will be effective for plans starting in 2020. Also, the tax will be considered a deductible expense for tax purposes, lowering its effective cost. These two provisions are a significant first step toward either full repeal or reform of the Cadillac Tax down the road.

Many employers had already reluctantly begun to make changes to their health benefit strategies in anticipation of the original 2018 implementation date, and many more were studying their options in anticipation of making changes. The delay provides significant breathing room – employers are no longer under pressure to make changes. BeneFLEX HR along with the employee benefits industry will continue to advocate for a full repeal of the tax; or short of repeal, advocate for incremental reform such as carving out the employee contributions to FSAs and HSAs from the tax calculation.

In summary, the revised legislation provides additional time for businesses, with the help of bipartisan support in Washington, to continue to fight for repeal or reform of the Cadillac Tax. Given the tax is now (at least) four years away instead of two, employers are well advised to NOT make any significant near-term changes to their benefit strategies as a reaction to the Cadillac Tax so that they can focus on the right health benefit strategy to support their business and employees’ needs.

Creates parity with tax breaks for employer-provided parking and mass-transit benefits.

Beginning in 2016, the monthly maximum tax exclusion for qualified mass-transit passes or van pool rides will increase from $130 per month to $255 per month, the same as the already established $255 per month cap for qualified parking benefits. Organizations can subsidize their employees’ commuting or parking costs with pretax dollars up to the allowable monthly limit, which results in lower payroll taxes than if they paid the money in wages. Alternatively, employees can pay for mass-transit passes or parking by having pretax dollars deducted from their paychecks through an employer’s salary deferral program, up to the allowable monthly limit.

The measure also retroactively raises the 2015 mass-transit tax-exclusion limit from $130/month to $250/month, equal to the existing 2015 cap of $250/month for parking benefits. Unfortunately, for employees who fund their benefits with pretax dollars through a salary deferral program, retroactively contributing more than $130/month for 2015 could be administratively difficult so late in the year.