IRS Asks For Comments on New “Cadillac Tax” Rules
The Internal Revenue Service has identified additional issues under Code Section 4980I, commonly known as the “Cadillac Plan” excise tax, and is proposing new regulations to deal with them.
The agency is seeking public comments until October 1 on the proposed changes in Affordable Care Act rules regarding the excise tax, which will apply to tax years beginning January 1, 2018.
In February, the Treasury Department and the IRS issued Notice 2015-16, which addressed the definition of coverage to which the “Cadillac Plan” tax would be applicable, determination of the cost of the coverage, and the application of the dollar limit to the cost of coverage for determining the portion subject to the tax.
The latest announcement, Notice 2015-52, addresses additional issues, including the identification of taxpayers who may be liable for the tax, the effect of employer aggregation, allocation of the tax among applicable taxpayers, and payment of the tax.
After reviewing public comments on both Notices, the IRS and Treasury intend to issue proposed regulations on the excise tax.
The ACA imposes a 40% excise tax on any “excess benefit” granted to an employee over the applicable dollar limit for the employee as specified under the law.
One issue addressed in the latest Notice is defining the “coverage provider,” who may be the health insurance issuer, the employer, the plan administrator or the plan sponsor.
The IRS noted that, if an insurance company must pay an excise tax on behalf of an employer, the insurer is likely to pass through that added cost to the employer. But because the excise tax is not deductible for tax purposes, the insurance company is likely to charge the employer not just the amount of the excise tax but for the additional income tax, the insurance company will incur.
In addition, the Notice acknowledges that dollar limits on employer plans may vary depending on the age and gender characteristics of the employee population, since on average, older employees have higher health care costs than younger workers, and younger women have higher health costs than younger men.
The agencies also want public comment on how the excise tax might affect health savings accounts, flexible spending accounts, and similar trust or custodial accounts.
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