T he Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) includes a 40% excise tax on high-cost employer-sponsored health insurance coverage, often referred to as the Cadillac tax . If a tax is owed, it is levied on the entity providing the coverage (e.g., the health insurance issuer or the employer). Under the ACA, the excise tax was to go into effect in 2018; however, the Consolidated Appropriations Act of 2016 (CAA of 2016; P.L. 114-113 ) delays implementation until 2020. This report provides an overview of the excise tax. The information in this report is based on statute and two notices issued by the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS). The Excise Tax on High-Cost Employer-Sponsored Health Coverage

Many employers offer health insurance plans and other health-related benefits (e.g., health care flexible spending accounts, or FSAs). Beginning in 2020, a 40% excise tax is to be assessed on the aggregate cost of an employee's applicable coverage that exceeds a dollar limit during a taxable period. The entity responsible for paying the excise tax to the IRS is the coverage provider. The terms applicable coverage, dollar limit, and coverage provider are defined and described in more detail below. The Department of the Treasury has not yet issued the 2020 limits, but the Congressional Research Service estimates they will be about $10,800 for single coverage and $29,100 for non-single coverage. In general, the employer is responsible for calculating the aggregate amount of applicable coverage that is in excess of the threshold and determining each coverage provider's applicable share of the tax.
The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) includes a 40% excise tax on high-cost employer-sponsored health coverage. This excise tax is often called the Cadillac tax. Under the ACA, the excise tax was to be implemented beginning in 2018; however, the Consolidated Appropriations Act of 2016 (P.L. 114-113) delays implementation until 2020.
The excise tax applies to the aggregate cost of an employee's applicable coverage that exceeds a dollar limit. Applicable coverage includes, but is not limited to, the employer's and the employee's contribution to health insurance premiums and certain contributions to tax-advantaged health accounts (e.g., health care flexible spending accounts, or FSAs).
In 2020, the Congressional Research Service (CRS) estimates the dollar limits will be about $10,800 for single coverage and $29,100 for non-single (e.g., family) coverage. The dollar limits may be adjusted based on growth in health insurance premiums and characteristics of an employer's workforce. Additionally, the dollar limits are to be adjusted for inflation in subsequent years.
The entity providing the coverage, the coverage provider, is responsible for paying its share of the excise tax. A coverage provider may be an employer, a health insurer, or another entity that sponsors the coverage. The employer is responsible for calculating the amount of tax owed by each coverage provider (if any).
All of this information is covered in more detail in this report, which provides an overview of how the excise tax is to be implemented. The information in the report is based on statute and guidance issued by the Department of the Treasury and the Internal Revenue Service.