The IRS has issued
additional guidance on the Affordable Care Act's ("ACA's")
40 percent excise tax on "high-cost, employer-sponsored group
health plans (i.e., the "Cadillac tax"), which is
currently scheduled to begin in 2018. In Notice 2015-52, the IRS discusses
a number of issues concerning the tax, including who is responsible
for paying the tax and how to calculate the tax for various types of
plans. However, this new Notice seems to raise more questions than it
The ACA provides that a
non-deductible 40 percent excise tax will be imposed on
"applicable employer-sponsored coverage" in excess of
statutory thresholds (in 2018, $10,200 for self-only, $27,500 for
family). These amounts are subject to increases based on age and
gender, and for certain individuals in high-risk professions.
Bipartisan legislation has been introduced to repeal this confusing
and unpopular tax.
Who Pays the Tax?
In general the tax must be
paid by the "coverage provider." This is defined as: (a)
the health insurance issuer, in the case of applicable coverage under
a group health plan that provides health insurance coverage; (b) the
employer, in the case of applicable coverage under an arrangement in
which the employer makes contributions (e.g., self-funded
plans, flexible spending accounts with actual employer contributions,
and health savings accounts);, or (c) "the person that
administers the plan benefits." The definition of "the
person that administers" and the application of these rules to
multiemployer plans will be determined in future guidance.
Determining Cost of
calculate the cost of coverage, an employer must determine the
extent, if any, to which the cost of coverage provided to an employee
during each month exceeds the Cadillac tax dollar limit. The employer
then must notify both IRS and the coverage provider of the amount of
the excess benefit, and the tax must be paid by the coverage
provider. According to the Notice, "IRS anticipates that
employers will be required to determine the cost of applicable
coverage provided during a taxable year sufficiently soon after the
end of that taxable year to enable coverage providers to pay any
applicable tax in a reasonably timely manner."
IRS says that the cost of
coverage may be determined in a manner similar to the method used to
determine COBRA premiums but has requested suggestions on alternative
methods to determine cost.
IRS has also asked for
assistance on how an employer can determine whether its particular
costs are effected by the age and gender mix of its employees. IRS is
considering a requirement that an employer use the first day of the
plan year as a snapshot date for determining the composition of its
employee population. In other words, an employer would be required to
determine the age and gender of each employee as of the first day of
the plan year and determine whether this would qualify for the age
and gender adjustment of the Cadillac tax.
Also, the Notice says that
if an employer has its premiums increased by the "coverage
provider" (e.g., an insurance company) to pay for the
Cadillac tax, this increased premium will not be included in
calculating the cost of the coverage and will be taxable income for
the coverage provider. However, the method of determining how this
exclusion and taxation will operate has not yet been determined.
Payment of Tax
IRS is asking for comments
on both the method of providing information to the various coverage
providers, and the timing of when that information must be provided.
It has said it may use Form 720, Quarterly Federal Excise Tax Return,
for the payment of the tax. Although Form 720 generally is filed
quarterly, under this approach, a single specified quarter of the
calendar year would be designated for the use of Form 720 to pay the