The Internal Revenue Service is mulling how to collect the hefty 40% excise tax, also known as the “Cadillac Tax,” on employee sponsored healthcare insurance plans put into effect by Obamacare. Already the tax agency’s ideas are drawing fire.
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The Cadillac Tax is so named because it applies to the most generous of health care plans. It imposes a 40% excise tax on the portion of group health insurance premiums that exceed $10,200 for single coverage and $27,500 for family coverage starting in 2018. Unions, whose members often enjoy generous healthcare plans, have been successful in seeking exemptions to the excise tax for firefighters, police and longshoremen among others.
The Patient Protection and Affordable Care Act (PPACA) requires that insurers pay the tax, but as a practical matter employers reimburse insurers for the tax amount. And, that’s where the controversy comes in. Now some are questioning whether that system of reimbursement will actually result in a double taxation because the reimbursement will be recorded as income by the insurer. That means the reimbursement, which presumably was taxed at the time it was earned by the employer, may be taxed a second time.
The IRS has yet to decide how the tax will be collected and is seeking regulatory input from the public. But a 2014 Towers Watson & Co. study found that the tax will hit half of all employers in 2018 and more than 80% by 2023.