Congress Repeals the ACA’s Cadillac, HIT, and Medical Device Taxes; Revives PCOR Fee; and Extends the Paid Family and Medical Leave Tax Credit
January 7, 2020
On December 20, 2019, President Trump signed the Further Consolidated Appropriations Act of 2020 (HR 1865) into law. The main purpose of this legislation is to continue funding certain government operations. However, the bill also includes a number of employee benefits-related provisions. Specifically, the bill repeals the tax on high cost health coverage (aka the Cadillac tax), the health insurance tax (HIT, aka the Health Insurance Providers Fee), and the medical device tax. The bill also extends the ACA’s PCOR fee for 10 years (until 2029) and the paid family and medical leave tax credit for one year, and retroactively eliminates a commuter benefit tax for tax-exempt organizations.
ACA Tax Repeals
- Cadillac Tax: The Cadillac tax was introduced by the ACA and would have imposed a 40% excise tax on employer-sponsored coverage that exceeded a certain threshold. The tax was originally set to become effective in 2018, but had been delayed through 2022. HR 1865 completely repeals the tax, meaning it will never be imposed on any employer plan.
- HIT: The HIT is a tax imposed on insurers that was meant to help fund the cost of ACA implementation and the exchanges. Although the tax applied to insurers, insurers were allowed to push those costs through to group health plans through increased premium rates. HR 1865 repeals the tax effective January 1, 2021. However, the tax will still be due for the 2020 plan year.
- Medical Device Tax: The medical device tax was a 2.3% excise tax on manufacturers and importers of certain medical devices. The tax was originally set to become effective in 2013, but has been delayed multiple times. HR 1865 repeals the tax entirely.
PCOR Fee Extension
HR 1865 extends the PCOR fee for 10 more years. As background, the ACA imposes a fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans to help fund the Patient-Centered Outcomes Research Institute. The fee, required to be reported only once a year on the second quarter Form 720 and paid by its due date, July 31, is based on the average number of lives covered under the policy or plan.
The PCOR fee previously applied to policy or plan years ending on or after October 1, 2012, and before October 1, 2019. However, HR 1865 extends the fee through 2029.
Employers with self-insured plans (including HRAs) will need to continue their compliance with the PCOR fee requirement by filing Form 720 by July 31 each year. We anticipate the IRS will issue additional guidance on the extension, including applicable fee amounts, prior to the July 31, 2020, deadline.
Employer-Paid Family and Medical Leave Tax Credit
HR 1865 extends the employer-paid family and medical leave tax credit for one year. As background, the 2017 Tax Cuts and Jobs Act established a business tax credit for certain employer-paid family and medical leave, which ranges from 12.5% to 25% of the wages paid to qualifying employees, where such wage payments are at least 50% of the wages normally paid to the employee. The credit was originally available to employers only for wages paid in 2018 and 2019, HR 1865 extends the credit through 2020.
Retroactive Elimination of Commuter Benefit Tax for Tax-Exempt Organizations
HR 1865 also eliminates a tax on commuter benefits for tax-exempt organizations. As background, Congress (as part of the 2017 Tax Cuts and Jobs Act), enacted Section 512(a)(7), which required tax-exempt organizations to include in unrelated business taxable income their costs for providing “qualified transportation fringe benefits” to their employees. HR 1865 repeals section 512(a)(7) retroactive to the date of its enactment. We anticipate that the IRS will issue guidance relating to the repeal, including how to amend Forms 990-T (used to report and pay the tax), and how to claim related refunds.
HR 1865 »