How the Cadillac tax will affect flexible spending accounts: 5 things to know

Some experts predict the Affordable Care Act's "Cadillac tax" — a 40 percent excise tax on high-cost employer-based health plans — will be the death of flexible spending accounts, according to Politico.

Here are five things to know about how the Cadillac tax could threaten these employee benefits, as presented by Politico.

1. The Cadillac tax, which goes into effect in 2018, will impose the first-ever cap on open-ended tax breaks for employers that provide employee health benefits. According to data cited in the report from the Kaiser Family Foundation, more than half of all employers could face the tax by 2028.

2. The tax affects traditional health insurance and supplemental insurance plans like flexible spending accounts, which 88 percent of big companies offer, according to the report. Flexible savings accounts allow employees to save money for medical costs tax-free. The Cadillac tax could be the death of many flexible savings accounts because they can be a determining factor of whether many companies have to pay the tax, according to information in the report from the Kaiser Family Foundation.

3. Employers are subject to be taxed on the amount its workers contribute to the accounts. However, the issue for many employers is they cannot control the amount employees contribute to their flexible savings accounts, so they can't control whether they have to pay the tax or how much they will be taxed on, according to the report.

4. Companies are still waiting for more information from the Internal Revenue Service, which is expected next year, to determine whether they will cut flexible savings accounts from their benefits, according to the report.

5. The Obama administration said the Kaiser report exaggerated the impact of the Cadillac tax, according to the report, defending the levy. If it were repealed, the federal budget would need to make up $90 billion, according to the report.

5. Both Republicans and Democrats oppose the tax, with both parties supporting two bills in the House of Representatives to repeal the tax, according to the report. However, because the tax accounts for a chunk of the federal budget, it is unlikely it will be repealed this year, according to the report.

 

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