The President has signed the Consolidated Appropriations Act, 2016, which contains several provisions related to employee benefits. Most significantly, the new law delays the so-called “Cadillac tax” from 2018 to 2020.
Under the Affordable Care Act (ACA), a 40 percent excise tax was scheduled to go into effect on high cost employer-sponsored health benefits in 2018. For most plans, the tax would apply to self-only coverage costing more than $10,200 and family coverage costing more than $27,500. These amounts will be adjusted to reflect changes in the Consumer Price Index.
Under the original ACA language, the tax was not tax deductible; however, under the new law, the tax will be deductible. The law also calls for a study on suitable benchmarks for age and gender adjustments to the tax.
The law also waives the health insurance tax for calendar year 2017. This tax applies to fully insured plans and is passed on to employers in the premiums.
A 2.3 percent tax on medical devices that went into effect in 2013 is also eliminated for 2016 and 2017 and will be reinstated in 2018 if Congress takes no further action. Medical device makers pass this tax on in their prices, which increases health insurance premiums.
The law also permanently extends parity for the commuter benefits with parking benefits, retroactive to January 1, 2015. This increases commuter benefits to $250 per month for 2015 and $255 per month for 2016. Under Section 132(a) of the Internal Revenue Code, gross income does not include “qualified transportation fringe” benefits.
The amount for parking was higher than for van pooling or mass transit. The new law makes the amounts the same on a permanent basis. The retroactive increase is administratively difficult and the IRS will probably issue guidance within the next few weeks as to how to accomplish the retroactive change.