From the Hotline: HSA Subject to Cadillac Tax?

Question: Is an HSA subject to the “Cadillac tax”?

Answer: The “Cadillac tax” provision of the Affordable Care Act is scheduled to become effective in 2018. The IRS is expected to issue guidance for the administration of this excise tax including the method and timing for payment closer to 2018, so there may be changes to the rules prior to implementation.

With the information we have available today, what we do know is that the Cadillac tax applies to “applicable employer-sponsored coverage,” including the employer-only contributions towards an HSA. Employee contributions to an HSA are excluded. Applicable employer-sponsored coverage is, with respect to any employee, coverage under any group health plan made available to the employee by the employer, which is excludable from the employee’s gross income under Internal Revenue Code Section 106. The Cadillac tax is calculated for each taxable period with respect to an employee’s applicable employer-sponsored coverage, and equals 40 percent of the employee’s “excess benefit.”

The tax will be applied to the aggregate cost of health plans, including employer contributions towards HSAs (employee contributions are not counted) as well as FSAs and HRAs.

Source: http://www.law.cornell.edu/uscode/text/26/4980I