US Capital BuildingOn Dec. 20, 2017 Congress passed the Tax Cuts and Jobs Act, which makes significant changes to individual and corporate provisions of the U.S. tax code, including a reduction in the corporate tax rate to 21%, down from 35%, beginning in 2018.

Repeal of the Individual Mandate

The bill includes permanent repeal of the Affordable Care Act (ACA) individual mandate, requiring individuals to purchase and maintain health coverage, by zeroing out the penalty beginning in 2019. For 2018, most individuals are still required to maintain coverage or pay a penalty when they file their 2018 federal income tax return in 2019.

What About the Cadillac Tax?

The bill also changes how certain tax thresholds will be indexed for inflation. Affected provisions, including the ACA “Cadillac Tax” (scheduled to take effect in 2020), will now be indexed to the Chained Consumer Price Index (CPI) instead of the regular CPI (the previous metric). This change makes it likely that more employer-sponsored plans would trigger the Cadillac tax sooner.

The Cadillac Tax is a tax intended to rein in high-priced insurance policies offered through employers by placing a 40 percent tax on the portion of benefits exceeding certain price thresholds.

The tax also raises revenue (by as much as $66 billion dollars over a decade) for the ACA.

Cadillac Tax Will Hit Majority of Employer Plans

Employers should begin reviewing their group health plans in the coming year and take measures to avoid the excise tax.

The Cadillac Tax annual threshold amounts for 2020 are expected to be:

  • $10,900 for employee-only coverage
  • $29,400 for all other coverage

The excise tax brings greater pressure for employers to generate immediate cost savings through cost-shifting and other short-term fixes. It will be important to work with your trusted advisor so that short-term and long-term cost-management strategies can be considered and implemented.

It’s important to note that key elements of the ACA remain intact, including the Employer Shared Responsibility for large employers.

As always, feel free to contact us anytime to discuss your specific needs.

January 2018 TDG Newsletter

An Overview of the 2017 Tax Legislation PwC