Regardless of the opposition of congressmen, brokers, and employers, on July 30th, the United States Internal Revenue Service (IRS) issued another notice on the Cadillac Tax, which will go into effect in early 2018. Notice 2015-52 Section 49801 – Excise Tax on High Cost Employer-Sponsored Health Coverage addresses additional topics and issues related to the Cadillac Tax, which will seriously impact most employer-sponsored group health plans.
In February, the IRS issued Notice 2015-16. That notice brought into light the preliminary ideas for the reason of developing future proposed Cadillac Tax rules and regulations dealing with excess benefits, determining costs of coverage, and defining applicable coverage. Notice 2015-52 continues where Notice 2015-16 left off, and addresses such issues as who is responsible to calculate and pay the tax, how the tax should be paid, when the tax is to be paid, and detailing the types of challenges the employer aggregation rules may pose.
The purpose of this tax is to reduce excess healthcare spending by both employees and employers, and to help finance the continual expansion of healthcare coverage under the Patient Protection and Affordable Care Act (PPACA). The IRS points out that these types of notices should not be construed as official guidance. The following is a brief summary of some of the issues addressed in this notice.
To view the full notice visit this link from the IRS: http://www.irs.gov/pub/irs-drop/n-15-52.pdf.
Who will be liable to pay the excise tax?
Each “coverage provider” must pay the tax on its share of excess benefits for the applicable tax period. Even if the plan year is not, the applicable tax period will be the calendar year. Depending on the type of plan, the liable coverage provider varies. The excise tax is not a deductible expense.
What is applicable coverage?
In general, applicable coverage is coverage under any group health plan that is made available to the employee, former employee, surviving spouse, retiree, or other primary insured individual which is excludable from gross income.
Who determines the cost of applicable coverage?
The employer will be responsible to calculate and determine the amount the excess benefit provided to an employee during any month during the calendar year. All employers must notify both the IRS and all coverage providers of the exact amount of the excess benefit, and then, the tax must be paid by the coverage provider (not the employer).
The guidance in the notices issued by the IRS, so far, should be used to give employers an idea of how the IRS is intending to implement the Cadillac Tax. Employers should also note that after 2018, the inflation adjustment to the dollar limit amounts will be indexed to CPI, an index typically lower than healthcare inflation. Further, employers should pay very close attention to the forthcoming regulations in order to adequately prepare for the implementation of the Cadillac Tax.
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