Health FSAs and HSAs impacted by ACA “Cadillac” tax

Health Flexible Spending Account (health FSA) and Health Savings Account (HSA) contributions will factor into whether an employer’s applicable coverage will be subject to the 2018 Cadillac tax, the IRS recently announced.

Under present regulations, most employer-sponsored health coverage is a tax favored expense for both the employer and employee, regardless of how the benefit or premium is valued; this status extends to eligible salary reduction contributions made towards a Health FSA or HSA.

Starting in 2018, the IRS will impose a 40% excise tax on any “excess benefit” provided to an employee if the aggregate cost of applicable coverage exceeds $10,200 for individual and $27,500 for family (other than self-only) coverage. Aggregate cost will include health premiums or premium equivalents, employer HSA contributions along with employee salary reductions to a Health FSA and HSA. Employee after-tax HSA contributions will not be included.

As Henderson Brothers continues to monitor regulations, our consultants are engineering ways to lessen the impact of the Cadillac tax on our clients, including programs limiting employee HSA pre-tax contributions to a set dollar amount or require employee HSA contributions to be made with after-tax dollars.


Please note that the information contained in this document is designed to provide authoritative and accurate information, in regard to the subject matter covered. However, it is not provided as legal or tax advice and no representation is made as to the sufficiency for your specific company’s needs. This document should be reviewed by your legal counsel or tax consultant before use.

Additionally, the messages and content within the Pittsburgh Health Care Reform group do not reflect the advisory services of Henderson Brothers, Inc.