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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy at
the federal, state, local, and global
levels. We are a 501(c)(3) nonprofit
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The “Cadillac” Tax and
the Income Tax Exclusion for
• The Patient Protection and Affordable Care Act (PPACA) imposed an excise
tax on high-cost employer-sponsored health coverage. This “Cadillac” tax was
established to help pay for the PPACA’s provisions and to reduce health-care
costs by limiting the income tax exclusion for employer-sponsored insurance.
The tax has been delayed on several occasions but is currently scheduled to
be enacted in 2022.
• The Cadillac tax would require coverage providers to pay a 40 percent excise
tax levied on “excess benefits,” or the value of health insurance benefits
surpassing approximately $11,200 for individuals and $30,150 for families in
• The tax would encourage employers to reduce the value of health benefits
provided to employees to avoid the tax. Instead, employers would provide
more compensation in the form of wages that would be taxed by the payroll
and income taxes.
• By placing a functional cap on the income tax’s exclusion for employer-
sponsored insurance, the Cadillac tax would reduce demand for high-cost
health insurance plans, reduce the quantity and price of health-care services,
and generate revenue from mostly higher-income taxpayers.
• Congress continues to debate delaying or repealing the Cadillac tax. Ideally,
Congress would allow the tax to go into effect.
Federal Research Manager
TAX FOUNDATION | 2
The Patient Protection and Affordable Care Act (PPACA)