Spending Resolution Affects ACA Taxes
On January 22, 2018, President Donald Trump signed into law a short-term continuing spending resolution to end the government shutdown and continue funding through February 8, 2018. The continuing resolution impacts three taxes and fees under the Affordable Care Act (ACA).
Specifically, the continuing resolution:
- Delays implementation of the Cadillac tax on high-cost group health coverage until 2022;
- Provides an additional one-year moratorium on the health insurance providers fee for 2019; and
- Extends the moratorium on the medical device excise tax for an additional two years, through 2019.
The ACA imposes a 40 percent excise tax on high-cost group health coverage, also known as the “Cadillac tax.” This provision taxes the amount, if any, by which the monthly cost of an employee’s applicable employer-sponsored health coverage exceeds the annual limitation (called the employee’s excess benefit). The continuing resolution delays implementation of the Cadillac tax until 2022.
Health Insurance Tax
The ACA imposed an annual, nondeductible fee on the health insurance sector, allocated across the industry according to market share. This health insurance providers fee, which is treated as an excise tax, is required to be paid by September 30th of each calendar year.
The continuing resolution provides an additional one-year moratorium on this health insurance tax for the 2019 calendar year. However, the continuing resolution specifically declines to extend the moratorium through 2018. Therefore, the fee continues to apply for the 2018 calendar year.
Employers are not directly subject to this health insurance tax. However, in many cases, providers of insured plans have been passing the cost of the fee on to the employers sponsoring the coverage. As a result, this one-year moratorium may result in significant savings for some employers on their health insurance rates.
Medical Device Excise Tax
The ACA also imposed a 2.3% excise tax on the sales price of certain medical devices. Generally, the manufacturer or importer of a taxable medical device is responsible for reporting and paying this tax to the IRS.
The continuing resolution extended this moratorium for an additional two years, through the 2019 calendar year. The continuing resolution provides that this additional delay applies to sales made after December 31, 2017. The medical devices tax will not apply to any sales made between January 1, 2016, and December 31, 2019.