LEGISLATIVE UPDATE 12/20/2019: Cadillac tax and UBIT relief signed into law.
At times, the legislative environment is very complicated and polarizing. However, some might call it “peachy” these days. As a result, there might be some glimmers of hope.
Non-profits to see tax relief
Current State: The Tax Cuts and Jobs Act of 2017 required tax exempt entities (AKA non-profits) to pay unrelated business income tax (UBIT) on contributions employees set aside for qualified transit and parking benefits. This created a direct financial hit to these non-profits. As a result, this discouraged the adoption and promotion of these valuable transportation benefits.
Relief Passed: The government passed a spending bill on December 20, 2019. It contained a provision that would reverse the rule. In other words, tax exempt entities would not be subject to UBIT when providing qualified transit and parking benefits to their employees.
Repeal of the Cadillac Tax
The 2020 year-end spending bills also brought final resolution on the Cadillac Tax. There have been various efforts to repeal or further delay the Cadillac tax.
The Cadillac Tax is an excise tax on employer-sponsored health care coverage which is considered a excess benefits (or high cost plans). This tax was set to go into effect in 2022 (after several delays). And, the latest inclusion in the appropriations bill permanently repeals the Cadillac Tax.
ACA Individual Mandate Ruled Unconstitutional
On December 12, 2019, a Federal Appeal Court found the Affordable Care Act’s Individual Mandate unconstitutional. The Individual Mandate was held up as a tax previously. However, the Individual Mandate could no longer be considered a tax when the tax was set to $0. Because of this, there is still some opportunity for further appeals. In addition, it is also unclear how the fall of the Individual Mandate would affect other aspects of the Affordable Care Act.
Legislative Introductions Abound
With the current legislative climate and 2020 being an election year, there is no expectation for big legislative achievements. However, that has not stopped the introduction of new legislation. Here are a few key measures affecting pre-tax benefits.
What is the buzz in the healthcare?
- S.2440 Qualified Health Savings Account Distribution Act. Modifies rules for terminating or converting from a flexible spending account or health reimbursement account to a health savings account.
- H.R. 603 Health Savings Account Expansion Act. Modifies the requirements for HSAs by increasing contribution limits, permitting HSA funds to be used on premiums, allowing over-the-counter expenses to be paid from HSA, eliminating health plan requirements and reducing tax on non-qualified withdrawals.
- H.R.4651 American Future Healthcare Act. Provides various enhancements to make health savings accounts more accessible and easier to use.
What else is on the horizon?
- H.R.3397 Child and Dependent Care Modernization Act. This measure increases the limits for dependent care accounts and allows unused funds to be carried forward to the next year.
Looking to make your voice heard and show your support for these legislative priorities? Contact your members of Congress.