Discussions Over Taxing Employer-Provided Benefits Ongoing

October 27, 2017

As House GOP leaders prepare to release their tax bill next week, limiting the tax exclusions for a host of employer-provided benefits remains part of the discussions, particularly as part of a fourth tax bracket for higher-income taxpayers.  The House plans to release its draft bill next week, with the Senate to follow later.  What we know about the tax reform discussions at this point is:
  • Members are looking for revenue offsets in order to reduce tax rates as much as possible;
  • The state and local tax deduction may be capped for high-income taxpayers;
  • Some limit on 401(k) plans is still on the table, possibly coupled with other saving incentives, such as increasing investments in Roth retirement plans where tax exclusions are shifted to post-retirement years;
  • Some cap on the tax exclusion for short-term disability benefits is possible, which could impact generous leave benefits;
  • Health care taxes, including the health insurance tax and medical device tax, will be part of some other year-end bill and, at least for now, there are no plans to change the tax exclusion for employment-based health benefits; and
  • While the Cadillac tax is not currently in the mix, amendments to repeal or delay it are expected.
Also expected next week is a House bill to fund the ACA cost-sharing reduction payments, expand health saving accounts, and increase state flexibility through the 1332 waiver program.  However, it is not clear whether such a bill could pass the Senate.  The House also plans to vote next week on a bill (H.R. 3921) to renew funding for the Children's Health Insurance Program because a number of states are about to run out of funding.  Although the CHIP bill was earlier viewed as a potential vehicle for significant ACA reform, the urgent need to extend funding for the program will likely limit amendments to those that can attract significant bipartisan support.