Cadillac Tax Delay, New Transit Limit, & Fee Moratorium

December 28, 2015

Earlier than expected, President Obama signed the Consolidated Appropriations Act, 2016 (HR 2029) into law on December 18. Included in the Act were important provisions that impact employer benefit plans:

Two year delay of Cadillac Tax:

  • The excise tax on high cost employer-sponsored health coverage has been delayed from 2018 to 2020.
  • The excise tax will now be tax deductible to the taxpayer.
  • Within the next 18 months, the Comptroller General must submit a report to Congress regarding the suitability of using the FEHBP[1] BlueCross/BlueShield benefit as the benchmark for calculating age and gender adjustments and recommendations regarding potentially more suitable options.

Parity in Transit & Parking Benefit Limits:

  • The monthly limit for transit benefits has been increased to match the employer-provided parking benefit limit.
  • For 2015, the pre-tax limit for transit and parking is now $250 per month.
  • For 2016, the pre-tax limit for transit and parking is $255 per month.
  • In future years, unless and until Congress makes another change, the transit and parking monthly limits will continue to automatically be the same.
  • The change is retroactive to January 1, 2015, but the retroactive application only affects employers who allowed post-tax deductions for amounts over the previous 2015 monthly limit of $130. Those employers will need to adjust the taxed amounts over $130 and to $250 per month for 2015 compensation. For guidance on making this adjustment, please review IRS Notice 2015-2.
  • DC- based employers with 20 or more employees, who become subject to the DC Transit Benefit Ordinance on January 1, 2016, are required to increase the transit benefit option to the new $255 per month limit. Other employers are permitted to limit the pre-tax amount to $255 or less per month.

Update January 11, 2016: The IRS published Notice 2016-06 providing guidance for employers who provided taxable transit benefits over $130 per month in 2015. The guidance addresses how to make adjustments on the employer’s Form 941 or Form 941-X, the requirement to repay or reimburse employees for overcollected FICA and Additional Medicare Tax, and the effect on the employee’s Form W-2 or the need to issue a corrected Form W-2.

Moratorium on Health Insurance Industry Fee and Medical Device Tax:

  • Since 2014, health insurance carriers have been paying a health insurance industry annual fee, which generally increases health insurance premiums charged to employers by approximately 3%. Insurance carriers will not have to pay the fee in 2017.
  • Since 2013, there has been an additional 2.3 percent tax imposed on the sale of medical devices. There will be a moratorium on this tax during 2016 and 2017.