Come on Down – Not to Win But to Avoid Getting a Cadillac (Tax)!
The Price is Right recently began its 42nd season of daytime television entertainment. Its decades-long run is a testament to what viewers crave in their mid-morning television – an audience full of energy and, of course, the chance to win a shiny new car. The eternal skeptics (including yours truly) who watch the show almost instinctively ponder the tax burden accompanying any large prize (c’mon, you know you’ve thought the same). Yet what if a contestant could win the shiny new car without the accompanying tax burden?
That’s the case with the upcoming excise tax on high-cost employer-sponsored health coverage, often referred to as the “Cadillac” tax. This 40%, non-deductible tax implemented by PPACA begins in 2018 and is levied against any excess benefits over the $10,200 (single) and $27,500 (family) thresholds, based on both employer and employee premium contributions plus the aggregate value of employee-elected programs including FSA, HRAs, and HSAs. The tax is real – the Congressional Budget Office estimates its burden to be about $79 billion between 2018 and 2023. More importantly, the tax is levied against the employer. This means that the employee receives the “excessive benefit” without the tax consequences – cue Bob Barker’s iconic “come on down!” now (no offense, Drew Carey).
Employers who begin preparing now for the Cadillac tax could avoid it altogether by 2018. Analyze your benefits costs, adjusted for scheduled cost increases through 2018. Consider scaling back the health benefit offerings or increasing workers’ deductibles and copays so to avoid paying the tax. Employers who ignore these costs until the tax takes effect could see a large tax bill with no Showcase Showdown.