AT&T Inc. said Friday, March 26, that it will take a noncash charge of about $1 billion to its first-quarter earnings to reflect an upcoming change in the tax treatment of federal subsidies provided to employers that offer prescription drug coverage to Medicare-eligible retirees at least equal to Medicare Part D.
Under current law, the government provides tax-free reimbursement of 28 percent of employers’ retiree prescription drug expenses that fall within a certain range.
But health care reform legislation passed last week by Congress will alter that tax treatment in 2013. While the tax-free subsidies will continue, employers receiving them will no longer be allowed to take a tax deduction for prescription drug expenses equal to the amount of the subsidy.
Under accounting rules, employers are required to immediately recognize the impact of such a change on their financial statements. Earlier this week, Peoria, Illinois-based Caterpillar Inc. reported a $100 million charge and Moline, Illinois-based Deere & Co. reported a $150 million charge concerning the loss of the tax break.
In a filing with the Securities & Exchange Commission, Dallas-based AT&T said that as a result of health care reform legislation, “including the additional tax burden” resulting from the retiree prescription drug provisions, it will evaluate prospective changes to its employee and retiree health care benefits plans.