Second Opinions

SECOND OPINIONS: Questions About ACA 40% Excise Tax

Experts from Groom Law Group answer questions about the Patient Protection and Affordable Care Act.

By PS | July 22, 2015
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Internal Revenue Code section 4980I, as enacted by the Patient Protection and Affordable Care Act (ACA), imposes a 40%, nondeductible excise tax on employers, health insurance issuers, and/or other entities administering health plan benefits if the aggregate value of “applicable employer-sponsored coverage” exceeds a specified annual dollar limit. 

Earlier this year, Treasury and the Internal Revenue Service (IRS) issued Notice 2015-16 which provides initial guidance about the excise tax and describes certain approaches Treasury and IRS are considering with regard to implementation of the excise tax. The Notice also states that it will be followed by a second notice describing and inviting comments about potential approaches to certain additional issues, including procedural issues relating to the calculation and assessment of the excise tax.

Below are responses to questions we have received regarding the excise tax and the Notice.

When is the excise tax effective?    

The excise tax is effective beginning for taxable years beginning in 2018. It is likely that any excise tax owed based on the 2018 tax year will be payable in 2019.

What guidance is provided in the Notice? 

In general, the Notice describes potential approaches to the following three issues: (1) the definition of applicable coverage; (2) determination of the cost of applicable coverage; and (3) application of the annual dollar limits to the cost of applicable coverage.