New IRS Guidance Suggests Obamacare 40% Cadillac Tax Could Get Even Worse

As it did earlier this year, the IRS is asking for input on the Cadillac tax. Most comments are likely to be technical, on minute parts of the massively complex tax. Many Americans might make a more general comment: ‘get rid of it.’ Yet the tax is part of Obamacare, which the Supreme Court upheld. Bills have been introduced to repeal the tax, but meantime, the IRS has to administer it.

Obamacare contains many taxes including the Cadillac tax. Of all the taxes in the ironically named Affordable Care Act, none is more onerous, a whopping 40% on top of all other federal taxes. It is an excise tax meant to discourage something specific.

Some observers say it was sleight of hand to pass a law in 2010 adding a 40% tax in 2018. It was probably a bad idea even before the news broke that a once famous and now nearly infamous adviser had a big hand in the slick packaging of the law. That delayed effective date deemphasized the provision.

The Cadillac tax is increasingly under fire. Already, anyone who can avoid it is doing so. One survey showed that 62% of companies facing a 40% Cadillac tax hit in 2018 are already changing coverage to avoid it. Conversely, only 2.5 percent of companies say they will pay it.

Avoiding it usually means changing to higher deductible plans, reducing benefits, shifting more costs to employees, or dropping plans altogether. If no one pays it, how else will we pay for Obamacare? More tax increases? Cuts elsewhere?


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