A tax aimed at the richest health plans, and it never took effect.
Section 4980I targeted the most expensive employer-sponsored coverage. This page explains how the formula was built and why no employer, insurer or administrator ever owed it.
What The Law Targeted.
General information, not legal or tax advice. Check the cited sources before you act.
Cadillac Tax Overview
Start here for the whole story: what the tax was, how it ended and what employers do today.
The Excess Benefit
The 40 percent rate would have applied only to the slice of coverage cost above a dollar limit, never to the whole plan.
Who Would Have Paid
The statute placed liability on the party providing the coverage, so the burden would not have fallen on employees directly.
How The Formula Worked.
Section 4980I set a 40 percent excise tax on the excess benefit, figured month by month. The excess benefit was the amount by which the combined cost of an employee’s coverage went over an annual dollar limit. The 2010 law set that limit at 10,200 dollars for self-only coverage and 27,500 dollars for other coverage, stated in 2018 terms and indexed afterward. Higher limits were written in for certain retirees and for workers in high-risk professions.
Cost was counted broadly. It took in the employer share and the pre-tax employee share of medical coverage, together with employer and pre-tax contributions to health flexible spending arrangements and health savings accounts. The measuring rules were modeled on the ones used to set COBRA premiums.
Liability sat with the coverage provider. For an insured plan that generally meant the insurer; for self-funded arrangements it meant the party administering benefits; for certain HSA contributions it meant the employer. Congress then pushed the start date back more than once and finally repealed the section before any tax year began, so nobody ever owed a dollar under it.
Why Employers Still Ask About It.
The formula shaped planning for most of a decade. Finance teams charted projected premium growth against the thresholds, and some carrier and administrator paperwork was drafted with a tax pass-through in mind. Those models and clauses can still sit in old board decks, budget files and service agreements.
Seeing them again, an owner reasonably wonders whether anything is still pending. The answer is no, and the rest of this series shows where to confirm it.
Closing The Loop On Old Models.
Pull any projection that applies a 40 percent charge to plan cost and mark it retired, so that nobody rebuilds next year’s budget around it.
Ask your carrier or administrator whether any current agreement mentions section 4980I. A repealed section cannot be triggered, but a stray reference deserves a clean-up at the next amendment.
Keep one dated note in the benefits file stating that the tax was repealed and citing the public law.
Common Misreadings.
Treating the repeal as a rumor. The Code section itself now carries a repeal note.
Mixing it up with the employer shared responsibility payments under section 4980H. That is a different rule and it remains in force.
Assuming an earlier year was missed. Because the tax never took effect, there is no back year to correct.
Related Rules And Tools.
Affordable Care Act for Employers
The employer mandate, reporting and the other ACA duties in one place.
W-2 Box 12 Code DD: Reporting the Cost of Health Coverage
What the cost-of-coverage figure is and who must report it.
A Compliance Calendar for Your Plan Year
A plan-year view of the dates that matter.
Laws And Sources
Section 4980I, Repealed — The Code section with its repeal note and list of amending laws.
Public Law 111-148 — Patient Protection and Affordable Care Act, signed March 23, 2010, which added section 4980I.
Public Law 111-152 — Health Care and Education Reconciliation Act of 2010, signed March 30, 2010, which amended the section.
IRS, Affordable Care Act Tax Provisions — IRS statement that the Further Consolidated Appropriations Act, 2020 repealed section 4980I.
Public Law 116-94 — Further Consolidated Appropriations Act, 2020, signed December 20, 2019; Division N, Title I, Section 503 repeals section 4980I.
General information, not legal or tax advice.
Quick Answers.
Short replies on this page’s topic, each tied to a fuller guide.
Was anyone ever charged the Cadillac tax?
No. The tax was scheduled to begin in a future year, was postponed, and was repealed before it applied to any employer, insurer or administrator.
What was the rate?
Forty percent of the excess benefit, which means the part of coverage cost that went above the statutory dollar limit.
Did it apply to the whole cost of the plan?
No. Only the amount above the limit was taxed, and the limit differed for self-only and other coverage.
The Rest Of This Series.
Cadillac Tax Delays And The 2019 Repeal
The timeline of the Cadillac tax: enacted in 2010, postponed in 2015 and 2018, and repealed by Pub. L. 116-94 in December 2019.
What Still Applies After The Cadillac Tax Repeal
With 4980I repealed, employers still report coverage cost on the W-2 (Box 12, Code DD) and still face other excise taxes and fees. A plain summary.
How Cadillac Tax Thresholds Shaped Plan Design
How the shadow of the Cadillac tax thresholds pushed plan design choices, and how to rethink deductibles, HSAs and contributions now that it is repealed.
Questions To Ask A Broker About Legacy Cadillac Tax Concerns
Five questions to close out any lingering Cadillac tax worry: old contract language, budget models, W-2 Code DD, remaining excise taxes and future proposals.
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