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  • Andy Adams

Cadillac Tax Man Cometh After HSAs

If you drive a car, I'll tax the street

If you try to sit, I'll tax your seat

If you get too cold I'll tax the heat

If you take a walk, I'll tax your feet


Cos I'm the taxman, yeah I'm the taxman

George Harrison's classic Beatles tune is often cited when we get upset with the IRS for any number of reasons. But I suppose that is a bit like getting upset with the German Shepherd when its owner looks at your terrified face and yells, "SICK 'EM!" Our argument should not be with the German Shepherd, as much as the feeling of one's arm being caught in its jaws might persuade us otherwise. Our focus should be on the owner that holds the leash.

BEWARE OF DOG because here he comes again.

The IRS has a issued an initial guidance for the so-called "Cadillac Tax" that takes effect January 1, 2018. This is a 40% excise tax that will be imposed on any "excess benefit" provided to an employee on a monthly basis. The monthly dollar limit is derived from the annual limits of $10,200 ($850 per month) for self-only coverage and $27,500 ($2,291.67 per month) for other than self-only coverage. The guidance (Notice 2015-16) addresses what amounts will be looked at to determine whether an employer's plan crosses the "cadillac" threshold.

The most significant piece of news coming from this guidance is the fact that ALL health savings account (HSA) contributions, both those from the employer and employee, will count toward this threshold. Thus, the war against HSAs continues.

HSA contributions deducted from an employee's pre-tax wages is still money that the employee could have otherwise taken in pay. HSA were created to incentivize saving for medical expenses. The government already places a cap on the amount an individual can put into a health savings account on an annual basis. Now, the government will charge a 40% excise tax for any amount put into an HSA that exceeds the applicable monthly limit as a "Cadillac Tax." What is "cadillac" or excessively rich about saving your own money to pay your own medical expenses? After-tax contributions will not be included in that amount (at this point). So, it is the tax-favored status of the HSA contribution that causes it to fall under the cadillac tax threshold.

This is a great way to discourage the use of HSAs. Don't save too much money for your own health expenses!!

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