Benefits Buzz

Cadillac Tax Update

Posted on August 14th, 2015

It appears that the Internal Revenue Service (IRS) is having some trouble with formulating guidance as it relates to the Excise Tax on High Cost Employer-Sponsored Health Coverage, also known as the Cadillac Tax. Earlier this year the IRS released Notice 2015-16 which sought public comment on the types of coverage that should (or shouldn’t) be included when calculating the value of coverage.  
 
On July 30th, the IRS released another notice, referred to as Notice 2015-52, which is once again seeking public comment to assist in the process of developing regulatory guidance in relation to the Cadillac Tax. Notice 2015-52 addresses a number of issues including:
 
  • The identification of the person or entity responsible for paying the tax; and
  • Determining the cost of applicable coverage; and
  • Age and gender adjustments to the applicable dollar limit; and
  • Other issues.
 
Notice 2015-52 indicates the “coverage provider” is responsible for paying the excise tax, if applicable. The coverage provider will be the insurance company in the case of a fully insured plan and the employer in the case of an HSA or MSA.  In all other cases, the coverage provider is the “person that administers the benefits plan.” Neither the ACA nor ERISA defines the person that administers the benefits plan so the IRS is considering one of two approaches:
 
  1. The coverage provider will be the person or entity that has the ultimate control and authority over the plan, which will usually be the employer.  
  2. The coverage provider will be the person or entity responsible for administering the day-to-day operations of the plan (e.g. processing claims, handling employee inquiries).  In many cases, this would be the third-party benefits administrator.
 
Notice 2015-52 also suggests that the Cadillac Tax will be applied on a monthly basis rather than an annual basis.  The IRS recognizes that annual contributions to certain plans (e.g. lump sum HSA contributions) could trigger the penalty in one month but not in others.  As a result, the IRS is considering pro-rating annual contributions over the course of a twelve month period.  The IRS is also considering a safe harbor that would exclude amounts rolled over from a previous plan year for certain plans (e.g. Health FSA) from being used in calculating the value of coverage for the current year.   
 
The IRS is also expected to allow higher coverage dollar limits before the excise tax is triggered for employers with certain age and gender characteristics that differ from the national average.  Future tables are expected to be released by the IRS to assist in this process. 
 
There are a number of other issues that were addressed in Notice 2015-52. Public comments are due to the IRS by October 1, 2015.
 
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The materials contained within this communication are provided for informational purposes only and do not constitute legal or tax advice.
 

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