New and Pending Tax Legislation Affects Employer-Sponsored Plans
On Wednesday, the House of Representatives voted to approve tax legislation that includes significant changes for both businesses and individuals. Among these changes is a provision that will eliminate the individual mandate penalty under the Affordable Care Act ("ACA") beginning in 2019. As a result, individuals who choose not to obtain health coverage that meets minimum ACA requirements will no longer be subject to this penalty, which is expected to decrease enrollment and increase premium costs under health insurance plans in the future. Particularly for employers who enhanced or adopted their health plans in order to avoid potential penalties under the ACA's employer mandate, there may be a decrease in plan enrollment beginning in 2019, with respect to those employees who enrolled to avoid incurring an individual mandate penalty. Although it is difficult to predict the overall impact that this change will have on employer-sponsored plans, the Congressional Budget Office has estimated that the elimination of the individual mandate penalty will increase the number of uninsured individuals by four million in 2019.
In addition to this change, beginning January 1, 2018, employers who offer qualified transportation fringe benefits, such as parking and transit benefits, will no longer be permitted to deduct any of the costs that they incur in offering such benefits. Employees may still pay for qualified transportation fringe benefits through payroll deductions on a tax-exempt basis, but this change may cause some employers to stop offering this opportunity, since they will not be able to deduct any costs. The new tax bill also eliminates an employee's ability to exclude from gross income certain employer reimbursements for moving and bicycle commuting expenses, for tax years 2018 through 2025. In addition, the bill expands the scope of Section 162(m) of the Internal Revenue Code, which limits deductions for public companies whose covered employees receive compensation in excess of $1 million, beginning in 2018.
Notably, the tax bill did not delay or repeal the unpopular "Cadillac Tax" on high cost health insurance, which is set to go into effect in 2020. However, House Republicans recently presented separate legislation, in the form of a package of bills, that would delay application of that tax for an additional year, eliminate the employer mandate penalty through 2018, and delay application of ACA health insurance and medical device taxes. The bills containing these changes may be included in a government funding bill to be considered by the end of the month. Employers should stay tuned to further developments related to these separate bills, which may have a more immediate and significant affect on employer-sponsored plans than the tax reform changes described above.
The President is expected to sign the legislation this week. We'll continue to pass along updates as we learn more. In the meantime, if you have any questions or require assistance, please contact your IPS Advisors consultant.
Source: Wilkins Finston Friedman Law Group LLP
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