Introduced by the Affordable Care Act (ACA) and set to take effect in 2018, the Cadillac Tax is a 40% nondeductible excise tax on employers offering high-cost health plans to their employees. (“High-cost” is defined as health plans with premium costs above $10,200 for individuals and $27,500 for family coverage.)

The Cadillac Tax may be the most significant future cost increase to your bottom line.

While you may be looking for options to limit or eliminate the exposure to the upcoming excise tax – such as reducing benefits or introducing high-deductible health plans – there are still other viable tax strategies to lessen the overall impact and protect your profit margins.

The following are the three most commonly captured federal employment tax incentives and credits: 

• Work Opportunity Tax Credit (WOTC)
  The WOTC is an employment tax incentive program sponsored by the federal government, with the intention of increasing opportunities for people who have certain barriers to employment. WOTC target groups include those who are receiving public assistance, live in areas of high unemployment or have a military background, to name a few.
  
  Because of the personal nature of the target groups, most employers aren’t aware of all the possible qualification areas or employees who qualify. However, WOTC tax credits could be up to $9,600 per qualified employee, so it pays to find out if your hires qualify.
  

• Empowerment Zone Employment Tax Credit
  Empowerment zones (EZs) are designated low-income areas, both urban and rural, in need of revitalization. Companies that operate businesses in these designated areas qualify for federal employment tax credits and incentives, up to $3,000 per eligible employee.
  
  The EZ employment tax credit is also renewableavailable each year and there is no limit to the number of employees a business may claim, as long as each employee lives in an EZ. Both newly hired and current employees are eligible.

• Indian Employment Tax Credit
  The Indian employment tax credit was created to incentivize businesses to hire registered Native Americans (and their spouses) who live on or near an Indian reservation to work for an employer on that reservation. This tax credit may be claimed by businesses that pay or incur qualified wages to a qualified employee.
  

  The total amount of qualified wages (including qualified employee health insurance costs) used to figure the tax credit may not be more than $20,000 for each employee each tax year.

To develop sound tax strategies and offset the impact of the Cadillac Tax, it is recommended that you partner with a tax consultant who has expertise in employment-based tax credits and incentives. Your tax consultant helps you identify areas of tax savings opportunities, set attainable goals and establish the best course of action for achieving tax savings.

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