New IRS guidance spells out more issues the agency plans to address in imposing the excise tax on high-cost employer-sponsored health coverage (commonly known as the Cadillac tax). These include: (1) identifying taxpayers who may be liable for the excise tax; (2) aggregating several employers under one plan sponsor’s payment; (3) allocating the tax among the applicable taxpayers; and (4) paying the tax.
The new Notice 2015-52 also asks for comments on further issues, to help define and calculate the cost of applicable coverage, that were not addressed in an earlier notice on the tax. This earlier Notice 2015-16 (see story), issued on Feb. 23, defined the forms of coverage subject to the tax and how to determine the cost of applicable coverage and apply the dollar limit to this cost to calculate the excise tax.
The Cadillac tax provisions can be found in Section 4980I of the Internal Revenue Code. Under that section, if the aggregate cost of applicable coverage exceeds a statutory dollar limit (currently $10,200 for self-only coverage and $27,500 for other-than-self-only coverage), the excess is subject to a nondeductible 40 percent excise tax.
Comments on both notices will be used to inform proposed rules on Section 4980l, the notice stated.
Who Pays the Fee
The first question asked in the new notice is which entity (person) will be responsible for paying the tax. IRS is trying to decide whether it should be:
- the third-party administrator, because it performs the day-to-day plan functions, such as processing benefit claims, answering benefits-related questions and running computer systems for the plan (IRS requested comments on the types of duties that would make a TPA liable for paying the tax, and asked how easy it would be to identify a single responsible person in this context); or
- the named plan administrator with final decision-making authority, even if he or she does not exercise that authority routinely.
Employer Aggregation
The notice also asked for comments on how to administer the tax in situations when several employers are under one plan sponsor, such as controlled groups of corporations, partnerships under common control and affiliated service groups.
Timing Issues
The timing of the coverage cost determination is another area where IRS is seeking comments — for example, when the plan allows a run-out period for submitting claims, or when health savings accounts, health flexible spending arrangements, health reimbursement arrangements and Archer MSAs are coordinated with health coverage. The agency says health plans can be expected to report 12-month calendar-year periods, but the other benefit elements may not be on the same period.
Comments also were requested about how to handle insurer rebates and discounts that are credited after the end of the calendar year. How to calculate used and unused portions of HRA and other account-based cafeteria-plan amounts also is being pondered.
Insured Plans
The health insurer pays the excise tax and often rolls it into the customer’s premium the following year. The tax from a prior year may be excluded from the current cost of coverage, but only if such amounts are separately billed. Therefore, IRS proposed allowing employers to exclude last year’s excise tax only if it is separately billed and identified by the insurer.
Treasury and IRS invited comments on the exclusion of income tax reimbursements from the cost of coverage, and proposed a formula for doing so.
They proposed a way of counting excluding unspent amounts from health FSAs, particularly when unspent amounts are carried over from one year to another. Under one proposal, the amount of an employee’s salary reduction would be counted, without regard to carry-over amounts, and then spending from carry-over amounts would not be counted in the following year.
Steps to adjust the dollar limit for age and gender are being worked out, because premium rates fluctuate depending on the demographics of the covered workforce. Age and gender will not lessen the limits, only increase them, the agencies said.
Comments will be accepted until Oct. 1.
Click here for more analysis relating to the Cadillac tax.