IRS Issues Guidance About ACA Cadillac Tax

The Internal Revenue Service (IRS) has issued Notice 2015-16 to initiate the process of developing regulatory guidance regarding the excise tax on high-cost employer-sponsored health coverage. The so-called Cadillac tax was added to the Internal Revenue Code by the Patient Protection and Affordable Care Act (ACA).

Beginning in 2018, if the aggregate cost of “applicable employer-sponsored coverage” provided to an employee exceeds a statutory dollar limit, which will be revised annually, the excess is subject to a 40% excise tax. The notice describes potential approaches with regard to a number of issues that could be incorporated in future proposed regulations, and invites comments on these potential methods. The issues addressed primarily relate to (1) the definition of applicable coverage, (2) the determination of the cost of applicable coverage, and (3) the application of the annual statutory dollar limit to the cost of applicable coverage.

The IRS says it anticipates issuing another notice before the publication of proposed regulations, describing and inviting comments about procedural issues relating to the calculation and assessment of the excise tax. After considering the comments on both notices, the IRS anticipates publishing proposed regulations.

Public comments should be submitted no later than May 15, 2015.

In addition, the IRS issued Notice 2015-17, which reiterates the conclusion in previous guidance addressing certain health coverage reimbursement arrangements, including Notice 2013-54, that these arrangements are group health plans that will fail to comply with the market reforms that apply to these plans under the ACA. The notice also provides transition relief from the assessment of excise tax for failure to satisfy market reforms in certain circumstances.