“Cadillac Tax” Could Lead Some Workers to Lose Health FSA Benefits

October 20, 2015

The Affordable Care Act’s high-cost plan tax (“Cadillac Tax”) does not take effect until 2018, but some observers are already predicting its potential fallout.

In particular, one possible casualty resulting from the imposition of the new tax may be health care flexible spending accounts (FSAs)—popular tools used by many workers to set aside limited amounts of their salary ($2,550 cap in 2015) on a tax-free basis to be used toward eligible health care expenses. 

Under the law as currently written, FSAs could be in jeopardy because FSA contributions are specifically included in the calculation of whether an employee’s health benefits reach the threshold of a high-cost plan ($10,200 for individual coverage, and $27,500 for family coverage), at which point there is a 40% excise tax on the amount exceeding the threshold. As a practical matter, this may cause many employers to discontinue offering FSAs between now and 2018 as one strategy to adapt in the new world of the Affordable Care Act.  

For a detailed analysis of the Cadillac Tax and its potential impact, see How Many Employers Could Be Affected by the Cadillac Plan Tax? on the Kaiser Family Foundation website.

Source: Kaiser Family Foundation Website

This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

Follow @ecfa