Q&A: Does the Affordable Care Act's "Cadillac Tax" Affect Churches?
This confusing topic is gaining media coverage. Here's what churches should know.
Q&A: Does the Affordable Care Act's "Cadillac Tax" Affect Churches?

Media coverage is increasing with respect to the Affordable Care Act's so-called "Cadillac tax." Even though it now doesn't become applicable until 2020, what do employers—including churches—need to know about this tax?

It's a 40 percent tax, taxing the "excess value" of a health care plan. The government has come up with what it believes is a reasonable health care plan. If your church wants to provide a better, richer health care plan for employees, it can, but it will have to pay this 40 percent excise tax for the value of the excess coverage provided.

Churches face a unique issue: To calculate the tax, you have to know the value of the coverage. The guidance from government agencies says employers can use COBRA coverage rules under ERISA (the Employment Retirement Income Security Act of 1974) to determine the value of coverage. But churches aren't subject to ERISA and they therefore don't do COBRA calculations. In addition, the tax will be calculated using some yet-to-be-determined thresholds for individual and family that probably won't be set until 2018.

The year-end appropriations legislation delayed the effective date of the Cadillac tax until January 1, 2020. It was originally supposed to go into effect in 2018. Opponents of the tax are likely to continue their efforts to repeal the tax entirely. Many believe this tax will in fact be repealed before ever taking effect.

However, even with the delayed effective date, churches should still determine if their health care plans might be subject to this tax, and if so, whether to make their plans a little less rich during the next four years or begin to prepare to potentially pay this significant tax beginning in 2020.

Learn more about how the ACA will affect churches in 2016 through this video update with Danny Miller and this article in the January 2016 issue of Church Finance Today.

Go deeper on the entire Affordable Care Act and what it means for churches with these resources, both available on ChurchLawAndTaxStore.com:

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is published with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations."

Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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