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IRS provides further insight on rules to be included in regs on Cadillac health plan tax

Notice 2015-52, 2015-33 IRB

IRS has issued a second Notice which describes potential approaches with regard to a number of issues under Code Sec. 4980I, which could be incorporated in future proposed regs, and invites comments on these potential approaches. Code Sec. 4980I provides for the excise tax on high cost employer-sponsored health coverage.

RIA observation: Unusually expensive health insurance plans are sometimes referred to as “Cadillac plans.” Thus, this excise tax is sometimes referred to as a “Cadillac tax,” or a “tax on Cadillac plans.”

Background. For tax years beginning after Dec. 31, 2017, insurers will be subject to a nondeductible excise tax if the aggregate value of employer sponsored health insurance coverage for an employee (plus any former employee, surviving spouse and any other primary insured individual) exceeds a threshold amount. (Code Sec. 4980I) The tax, which was added by the Affordable Care Act, is equal to 40% of the aggregate value of the health insurance coverage that exceeds the threshold amount, calculated by way of a complex formula.

The excise tax is imposed pro rata on the issuers of the insurance. For a self-insured group health plan, a health flexible spending arrangement (health FSA) or an health reimbursement arrangement (HRA), the excise tax is paid by the entity that administers benefits under the plan or arrangement (the plan administrator ). The excise tax is paid by the employer if it acts as plan administrator to a self-insured group health plan, a health FSA or an HRA. Where an employer contributes to a health savings account (HSA) or an Archer MSA, the employer is responsible for payment of the excise tax, as the insurer. (Code Sec. 4980I(c))

In February of this year, IRS issued Notice 2015-16, 2015-10 IRB 732 (see Weekly Alert ¶  39  02/26/2015), in which it describes potential approaches in future proposed regs with regard to a number of issues dealing with the excise tax on high cost (Cadillac) employer-sponsored health coverage. Notice 2015-16 addressed issues primarily relating to: (1) the definition of applicable coverage, (2) the determination of the cost of applicable coverage, and (3) the application of the dollar limit to the cost of applicable coverage to determine any excess benefit subject to the excise tax. IRS invited comments on these topics.

Further guidance. Notice 2015-52 is intended to supplement Notice 2015-16 by addressing additional issues under Code Sec. 4980I, including:

…the identification of the taxpayers who may be liable for the excise tax;
…employer aggregation;
…the allocation of the tax among the applicable taxpayers;
…the payment of the applicable tax; and
…additional issues on the cost of applicable coverage that weren’t previously addressed in Notice 2015-16.

Notice 2015-52 invites comments on these issues and any other Code Sec. 4980I issues. After considering the comments on both Notices, IRS intends to issue proposed regs. These proposed regs will provide further opportunity for comment, including an opportunity to comment on the issues addressed in the preceding Notices.

A forthcoming article will discuss this guidance in further detail.

References: For the excise tax on high-cost employer-sponsored health coverage after 2017, see FTC 2d/FIN ¶  H-1225; United States Tax Reporter ¶  49,80I4; TaxDesk ¶  133,101.

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