President Signs Law Delaying ‘Cadillac Tax,’ Altering Other Workplace Provisions

Omnibus bill reauthorizes E-Verify program, adjusts transit benefit caps and hiring credits

By Stephen Miller, CEBS December 18, 2015

updated on 12/20/2015

The controversial 40 percent excise tax on high-cost health plans isn't dead, but it has been delayed.

President Barack Obama signed into law the Consolidated Appropriations Act of 2016 on Dec. 18, the same day that the U.S. Senate approved the measure—an omnibus spending and tax package that was amended to include the Protecting Americans from Tax Hikes (PATH) Act. The U.S. House of Representatives had approved both measures earlier in the week.

The omniubs measure includes a two-year delay of the Affordable Care Act’s (ACA’s) ‘Cadillac’ excise tax and a one-year reauthorization of the E-Verify program for confirming employment eligibility, among other provisions affecting employers—from benefit caps to hiring credits.

“Employers will now gain certainty related to the tax treatment of several employer-sponsored benefits. Additionally, the bill provides employers with predictability and flexibility when offering a comprehensive benefits package to their employees—a key component in retaining and recruiting a skilled workforce,” said Kathleen Coulombe, senior advisor for government relations at the Society for Human Resource Management (SHRM).

The legislative package:

Delays for two years implementation of the Affordable Care Act’s (ACA’s) 40 percent excise tax on high-value, employer-sponsored health care benefits.

The plans subject to the “Cadillac tax” are those with benefits valued above $10,200 for single coverage and $27,500 for family (other than self-only) coverage, indexed annually for inflation. The tax is now slated to take effect in 2020 instead of 2018.

“SHRM has long advocated for full repeal of the excise tax and applauds the two-year delay,” said Chatrane Birbal, SHRM’s senior advisor for government relations. “While a two-year delay in the implementation of the ACA excise tax will provide much needed relief to employers and employees, SHRM will continue to support and encourage Congress to fully repeal the excise tax. This delay of the excise tax will likely serve as the catalyst towards ultimately repealing the tax.”

Prior to the congressional votes, SHRM sent letters to members of the House and Senate encouraging their support of the bill. In June of this year, 50 SHRM-affiliated state councils and over 190 chapters signed onto a SHRM letter urging Congress to take action and repeal the excise tax. SHRM also is a leader of the National Coalition on Benefits and has been involved in direct lobbying and member advocacy efforts in support of legislative proposals to repeal the excise tax.

Makes the 40 percent excise tax fully deductible when it does take effect.

Under the ACA as enacted, the excise tax was a nondeductible levy, often to be paid by insurers or third-party administrators. But these third parties are expected to demand reimbursement from employers. Now that the tax will be deductible, “This substantially reduces the real cost of the Cadillac tax to employers,” according to an analysis by law firm Ice Miller.

Makes equal the tax breaks for employer-provided parking and mass-transit benefits.

Beginning in 2016, the monthly maximum tax exclusion for qualified mass-transit passes or van pool rides will increase from $130 per month to $255 per month, the same as the already established $255 per month cap for qualified parking benefits in 2016. Organizations can subsidize their employees' commuting or parking costs with pretax dollars up to the allowable monthly limit, which results in lower payroll taxes than if they paid the money in wages. Alternatively, employees can pay for mass-transit passes or parking by having pretax dollars deducted from their paychecks through an employer’s salary deferral program, up to the allowable monthly limit.

“SHRM supports provisions that assist employers in offering a comprehensive, flexible benefits package, and transit parity [between mass-transit and parking benefit limits] would do just that,” said Coulombe. Prior to the House and Senate votes, SHRM sent letters to all representatives and senators urging their support for this fix.

The measure also retroactively raises the 2015 mass-transit tax-exclusion limit from $130/month to $250/month, equal to the existing 2015 cap of $250/month for parking benefits. But for employees who fund their benefits with pretax dollars through a salary deferral program, retroactively contributing more than $130/month for 2015 could be administratively difficult so late in the year. (To learn more, see the SHRM Online article Law Makes Tax Breaks Equal for Parking & Transit Benefits.)

Makes permanent an permanent employer credit for differential pay for active military service personnel.

The legislation permanently extends the tax credit for differential pay provided to an employee (the difference in pay between their military and civilian pay) who is called to active duty. This provision, previously limited to small employers, now allows any employer to take a credit against its income tax liability for a taxable year, in an amount equal to 20 percent of the sum of the eligible differential wage payments for each of the employer’s qualified employees during the year.

In addition, the legislation provides:

A one-year extension of the E-Verify program to assist U.S. employers with maintaining a legal workforce. E-Verify is an online system that compares information from an employee's Form I-9, Employment Eligibility Verification, to data from U.S. Department of Homeland Security and Social Security Administration records.

An extension of the Work Opportunity Tax Credit (WOTC) until Dec. 31, 2019, allowing employers to receive a tax credit for hiring people from certain target groups. Employers would be eligible for a 40 percent credit on the first $6,000 of wages paid to such individuals, for a maximum credit of $2,400 for each eligible employee. (To learn more, see the SHRM Online article WOTC Extension Includes New Category for Long-Term Jobless.)

Expanded 529 plan withdrawals to allow students with education-savings plans to purchase computer equipment and related technology. Also, certain tuition refunds can now be put back into the 529 plan if the transfer is made within 60 days.

An extension of the Indian Employment Credit until Dec. 31, 2016. The credit offsets income tax liability for the first $20,000 of qualified wages and qualified employee health insurance costs paid or incurred by the employer with respect to enrolled members of a Native American tribe, or their spouses, who live on or near an Indian reservation and work for an employer on that reservation.

Maintaining the Office of Disability Employment Policy (ODEP) separate from the Employment and Training Administration (ETA). “The ODEP has a history of effectively partnering with employers to integrate people with disabilities into the workplace, and any effort to collapse the office into ETA could impact the mission and autonomy of ODEP,” said Birbal.

Labor Relations Not Addressed

“SHRM is disappointed that the bill does not include language preventing the National Labor Relations Board (NLRB) from changing the joint-employer standard, which has been well-recognized and understood by employers and employees for over 30 years,” said Kelly Hastings, senior government relations advisor at SHRM.

In rendering its decision in Browning-Ferris Industries this past August, the NLRB found that “indirect control” or even “unexercised potential” to control working conditions now makes two separate employers joint employers. The previous joint employer standard required an employer to have “actual, direct, and immediate” control over an employee to be considered a joint employer. The decision makes it easier for franchisee employees and contract workers to unionize.

“SHRM remains committed to working with Senate and House leaders in 2016 to advance legislation that blocks this newly created joint-employer standard,” Hastings said.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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