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Happy Holidays: Legislation Delays Cadillac Tax and Makes Transit Parity Permanent

Consolidated Appropriations Act, 2016, Pub. L. No. 114-113 (Dec. 18, 2015)

Visit the Health Care Reform Community on Checkpoint to join the discussion on this development (for Checkpoint subscribers to EBIA’s Health Care Reform manual).

Congress has passed, and the President has signed, appropriations and extenders legislation with provisions that delay by two years the 40% excise tax on high-cost employer-sponsored health coverage under Code § 4980I (the so-called “Cadillac tax”), permanently increase the combined limit for transit and vanpooling benefits under qualified transportation plans, and make other changes of interest to plan sponsors and administrators. Here are highlights:

  • Cadillac Tax. The effective date of the Cadillac tax has been delayed until 2020 (tax years beginning after 2019). And when the tax does take effect, it will be deductible—originally, it was to be nondeductible. The legislation also requires a report to Congress, within 18 months, regarding the suitability of the designated benchmarks for determining age and gender adjustments when calculating whether the tax is due.
  • Transit Parity Restored. The legislation permanently increases the combined limit for transit and vanpooling benefits provided under a qualified transportation plan, making it equal to the limit for qualified parking benefits. (That equivalence is often referred to as “transit parity.”) The increase is retroactive and applies to any month after 2014. Transit parity has been extended three times before (see our article). Prior to the legislation, the 2015 combined limit for transit pass and vanpooling benefits was only $130 per month, while the 2015 limit for qualified parking benefits was $250. As a result of the legislation, the combined transit pass/vanpooling limit for 2015 rises to $250; for 2016, the combined limit will be $255.
  • Other Provisions. The annual fee on health insurance providers under health care reform that took effect for calendar years beginning after 2013 will not apply in calendar year 2017. Amendments to Code § 414(c) address how the controlled group rules apply to church-related organizations. Notably, these provisions apply to years beginning before, on, or after the legislation’s enactment. Certain changes to the earned income credit and child tax credit (which may be relevant when calculating a participant’s federal tax savings from claiming the dependent care tax credit (DCTC) versus participating in a dependent care assistance program (DCAP)) have been made permanent. The legislation also changes the filing date (but not the distribution date) for Form W-2s, grants some relief for small errors on information returns and payee statements, and adds statutory authority for rollovers into SIMPLE retirement accounts.

EBIA Comment: The Cadillac tax delay will be welcomed by those struggling to determine its potential impact on their plans, although efforts to change or repeal the tax are likely to continue. After a series of temporary extensions, the combined limit for transit and vanpooling benefits finally has permanent parity with the parking limit. As with past retroactive parity extensions, for 2015 only employers who anticipated the extension and provided transit benefits in excess of the lower, pre-parity limit (whether through employee compensation reductions or out of employer funds) will be able to characterize those excess benefits as excludable. The IRS has provided transition guidance after other retroactive extensions of transit parity (see our article), so similar guidance may follow this time. For more information, see EBIA’s Health Care Reform manual at Sections XXX (“Tax on High-Cost Health Coverage”) and XXXVI.K (“Annual Fee on Health Insurance Providers”) and EBIA’s Fringe Benefits manual at Sections XX.E.2 (“Monthly Limit for Transit Pass Expenses”) and XX.F.2 (“Monthly Limit for Vanpooling Expenses”).

Contributing Editors: EBIA Staff.