On July 30, 2015, the IRS issued a second notice regarding the ACA's 40% Excise Tax on "high cost employer-sponsored health coverage," commonly referred to as the Cadillac tax.
Beginning in 2018, the Cadillac tax is set to impose a 40% non-deductible excise tax on the aggregate cost of "applicable employer-sponsored coverage" in excess of predetermined thresholds ($10,200 for self-only coverage and $27,500 for coverage other than self-only).
The recent July notice is a follow-up to the first IRS notice issued on February 23, 2015, and it continues the process of gathering feedback that will be used to develop regulations. Public comments on either notice, and on any other issues related to the Cadillac tax, may be submitted until October 1, 2015.
- The full text of the July notice can be found here: Notice 2015-52
- The full text of the February notice can be found here: Notice 2015-16
In addition to seeking further input, the second notice provides additional information on potential approaches that are being considered for administering the Cadillac tax, including: who will be liable for the tax, how the tax will be determined, and payment of the tax. Below are some key highlights from the notice.
Who is liable for the tax? Each "coverage provider" must pay the tax on its share of the excess benefit. A coverage provider is:
- The health insurer for insured coverage
- The employer for accounts such as HSAs/FSAs/HRAs
- "The person that administers the plan benefits" for all other applicable benefits - potentially the third-party administrator or the entity that has ultimate responsibility for plan administration, typically the employer
How will the tax be determined?
- Employer Aggregation: Related employers would be aggregated and treated as a single employer.
- Taxable Period: Following the end of each calendar year, the employer will have to figure out whether coverage provided to an employee during any month of the calendar year exceeds annual caps.
- Age & Gender Adjustments: Current annual thresholds may be increased for some employers based on how the age and gender of their employee population compares to the national workforce.
- Allocation of Accounts: Employer and employee contributions to accounts such as HSAs, HRAs and FSAs are likely to be allocated equally to each month of the plan year, regardless of when the contributions were actually made. For FSAs, it is proposed that the annual contribution amount be used, regardless of whether all funds were spent during the year or some funds were carried over to the next year.
How will the tax be paid?
- IRS Form 720, the Quarterly Federal Excise Tax Return, may possibly be used to pay the tax. If so, a specific quarter of the calendar year would be designated for payment. Each coverage provider will be responsible for filing and paying the tax on its share of the excess benefit.
Got something to say?
- Mail comments to: CC:PA:LPD:PR (Notice 2015-52), Room 5203, Internal Revenue Service, P.O. Box Box 7604, Ben Franklin Station, Washington, DC 20044.
- Email comments to: Notice.email@example.com (use "Notice 2015-52" in the subject).
- Important notes: All material submitted will be available for public inspection and copying. All comments should include a reference to Notice 2015-52.
As always, please feel free to reach out with any questions or concerns.