While this week's news centered around the government shutdown, the deal that ended it had an unexpected wrinkle that will affect consumer healthcare for the foreseeable future.
On Monday, President Trump signed a bill to fund the government for another three weeks. In this bill was a provision to delay the effective date of a targeted tax on high-cost, employer-sponsored health plans (the "Cadillac Tax") until 2022.
What's a "Cadillac" Tax?
Let's back up a bit. The Cadillac Tax was an attempt by the Affordable Care Act (ACA) to solve a tax subsidy issue that dates back to World War II called Employer Sponsored Insurance (ESI). The point of the Cadillac Tax was to address the impact of ESI, raise additional revenue to fund the Affordable Care Act, and encourage employers to go for more cost-effective healthcare options.
According to Forbes, ESI is a tax subsidy that was a result of wage freezes that took place during WWII, and ESI was a means for employers to use tax-free funds to cover the cost of generous health plans. However, as wages grew and ESI remained in place, this created long-term issues for the American healthcare system.
First, ESI only benefits those enrolled in employer-sponsored healthcare coverage, which accounts for about half of all Americans.
Furthermore, the ESI makes it cost-effective for employers to move more money into healthcare benefits rather than wage increases. In terms of compensation, it became cheaper for employers to provide additional healthcare benefits, as opposed to more pay.
So, the Cadillac Tax was created as a deterrent for employers who offer high-cost health plans, with the idea that more money would be available to cover uninsured individuals. This would make the most expensive plans - which some argued would lead to overuse/abuse of medical care benefits - to be less desirable to employers.
The ACA proposed an additional tax on high-cost health plans -- the "Cadillacs" of their industry. This tax adds 40% additional tax on the value of health insurance coverage they offer. This is determined by these thresholds: $10,200 for individual plans and $27,500 for families. In other words, this is the total cost of the healthcare plans, including vision and dental benefits.
The tax, which applies to health plans including FSAs, HSAs and HRAs, was originally set to begin in 2018 and had been delayed until 2022.
Why is the Cadillac Tax delayed?
While the Cadillac Tax seemed like a good idea on paper, Congress failed to implement the tax several times since the ACA passed. The main issue is that this tax is tied to general inflation -- which simply refers to the price of goods and services in an economy over time -- as opposed to medical inflation, which is roughly 2-3x lower.
Healthcare spending typically outpaces general inflation, so this could inevitably lead to a larger amount of healthcare plans being subject to the Cadillac Tax. Because of this, employers are already faced with tough decisions about whether to continue to provide the same standard of healthcare coverage, according to the Society for Human Resource Management.
Modern Healthcare reports that US employers have begun to implement healthcare changes if the Cadillac Tax ever goes into effect. A shift to high-deductible health plans (HDHPs) has been a leading trend with about 24% of workers in employer plans enrolled in a high-deductible option.
HDHPs are the only types of plans that are offer a health savings account (HSA) option, which could be contributing factor to their explosive growth. HSA enrollment has surged in 2017 to 21 million total accounts, a 16% increase year-over-year, according to research firm Devenir.
The Cadillac Tax has been a major sticking point in the world of consumer healthcare for years, and while it could see legislative changes in the future, this debate will most likely have to wait until its new implementation date in 2022.
If you're interested in diving deeper into this topic, you can read the full text of the bill to get a better idea of what it entails.
Ahead of Tax Day, Bloomberg released an article discussing ways in which you can maximize your savings, including with an Flexible Spending Account (FSA).
Ahead of Tax Day, Bloomberg released a tax-related article discussing ways in which you can maximize your savings, including those with a Flexible Spending Account, or an FSA.
While it may be too late to consider some of these strategies right now, Bloomberg emphasizes: "Every year, millions of taxpayers miss out on chances to lower their tax bills. They miss deductions or don't exploit tax breaks designed to lower the costs of education, retirement, and health care."
An FSA is the perfect example of a tax break that you shouldn't miss out on. You can save up to 40% on medical expenses including dental and vision care, medical services and thousands of everyday products like contact lenses, prescription eyeglasses, hot/cold therapy packs, band-aids and baby care items like thermometers, and breast pumps.
Even if you already have an FSA - and though you don't need to do anything extra for tax purposes with an FSA - you can still keep the following tips in mind to make the most of your FSA plan throughout the year.
Make the most of your FSA
1. Understand & Discover Covered Expenses
When you sign up for an FSA, you learn about available expenses covered by the plan including eye care and dental care. However, there are many more available medical services and thousands of products that qualify for an FSA. Your individual FSA will outline specifically what's covered, though if you'd like to browse and search for available expenses, take a look at our FSA Eligibility List. If you're ever not sure about a covered expense, it's best to reach out to your FSA administrator for more information.
2. Keep track of deadlines
Every FSA plan year has a specific deadline. These deadlines vary depending on the start date of your plan year, and also on if you have a deadline extension including a Grace Period. Some FSA plans may now have a Carryover option - up to $500 can be carried over to the next plan year. It's important to keep track of these deadlines and extensions, so you're maximizing what you contributed and to make sure you don't lose your contributions!
Have an FSA Store account? Sign up for the FSA Tracker to avoid missing important deadlines!
3. Submit Claims for your FSA
Be sure to submit claims on time. If you have an FSA debit card, you won't need to submit additional paperwork. It is a good idea to hold on to any receipts, just in case you need to substantiate a claim or explain an expense.
Learn more about what you can buy with your FSA card
4. Sign up for Multiple FSAs
If you and your spouse have access to different FSA accounts from work, signing up for them separately gives you access to up to $2,550 per person. That's a great way to save on out-of-pocket healthcare costs.
5. Ask about Qualifying Events
If you experienced big life changes - a new job, getting married, having a baby - you might be able to change how much you contribute to your FSA. Ask your FSA administrator if your plan allows for changes due to these "qualifying events," and ask when you would be able to change the contribution amount.
Workplace benefits like Flexible Spending Accounts (FSAs) are well-known for their ability to cover a wide variety of medical services and products, but they can also provide a major boost for employees through year long tax savings. With April 15 (Tax Day) on the horizon, now is a great time of year to discuss the many tax benefits that come with FSAs and how they can put more money back into your pocket and alleviate your concerns when medical expenses pop up. Learn more about FSA eligible expenses via FSAstore.com.
How do FSAs affect my tax earnings?
According to Bank Rate, the vast majority of companies will offer one of two FSAs – a Dependent Care FSA that covers costs like day care and other child-related expenses while parents can work, look for work, or attend school full-time, and a medical FSA that covers routine medical expenses. In both cases, money is taken out of your salary with payroll reductions each month on a pre-tax basis. Simply put, these funds are placed into an FSA on a pre-tax basis, reducing taxable income and providing more savings in the long run.
Do I need to do anything extra around tax time?
While there is a lot of jargon and conflicting information out there, filing taxes with an FSA is extremely easy. It's important to remember, while you can use your FSA for countless medical products and services, the account is not really yours, but the employer's. While you don't need to add anything specific to your tax return, you should be mindful of how much money is available in your FSA, as well as what you'd like to spend/carry over to the next year.
Currently, employees can allocate up to $2,500 per year in their FSAs. If the FSA runs on a calendar year basis, FSA holders typically have a deadline to use their funds by December 31, or if an employer utilizes the IRS's grace period, this is extended to March 15. It's important to note that these grace periods are not required by the IRS, so it's vital to check with an employer to see if this policy is in place. Last but not least, thanks to a new U.S. Treasury Department ruling, employees may be permitted to roll over up to $500 of their FSA funds to the next year, which can allow them to better plan their spending each year.
Can I itemize my FSA expenses?
According to Tax Brain, employees who have an FSA can itemize their deductions come tax season, but they will not be able to apply their FSA expenses when itemizing. Remember, this money has been placed in the account on pre-tax basis, so this would be considered double-dipping. Another key point to remember is that medical expenses must be at least 10 percent of your adjusted gross income (AGI), to qualify as deductions.
Ultimately, by staying on top of your FSA funds, being aware of employer policies and spending wisely, FSAs can be extremely beneficial for your long-term budget. An FSA will change little when it comes time to file a tax return, but utilizing the benefit throughout the year and being mindful of allocations can help you realize major tax savings each year.
Back-to-back traffic. Delays on the bus or train. Every morning you leave your house hoping you won’t run into the traffic gridlock, and you are not alone. For 600,000 people in America, 90 minutes of travel time over the span of 50 miles are a daily commute reality.
There are ways to make the commute a little less stressful...
If your employer offers a Transportation Reimbursement Account (TRA), also known as a Commuter Reimbursement Account, you will be able to save on commuting expenses on a pre-tax basis. Commuter benefits are meant to reduce traffic congestion by urging you to use public transportation. You can sign up for this benefit at any time.
- Mass Transit - Transit passes for rail, bus or ferry are eligible. Transit passes include passes, tokens, fare cards, or vouchers that let people ride (on mass transit or in at least a six-person vehicle) at either a lower rate or freely.
- Vanpooling (commuter highway vehicle) expenses are covered if minimum requirements are met. Mileage must at least be 80% for transportation to and from work. At least six employees and the driver must be in the van and half the seats occupied.
- Qualified parking consists of parking near the workplace or close to a location from which employees commute to work either via transit, vanpool or carpooling. Residential parking does not qualify.
- Bicycle commuting - A tax-free bicycle benefit was added in 2009. Reimbursement for that is up to $20/month ($240/year) on qualifying expenses including bicycle purchases, repairs, improvements, and storage. The bike must be regularly used for commuting.
You can spend up to $245/month combined on both transit and vanpool expenses. You can also spend up to $245/month on qualified parking.
Not eligible for Commuter Benefits
- Fuel, tolls, mileage.
- Any non-work related travel (taxis)
- If you are self employed, you would not be able to get the commuter benefits.
- Partners, independent contractors, and two-percent shareholders of S corporations are not eligible for the transportation fringe benefit.
- Spouses and dependents (kids).
Unused funds roll over at the end of each month, but you can only spend the monthly IRS contribution limit. You have the ability to change future contributions to avoid excess funds.
More IRS information on 2013 fringe benefits for employers can be found here.