On February 23, 2015 the IRS issued Notice 2015-16 to begin the process of developing guidance to implement the Cadillac tax, due to take effect in 2018. This notice describes potential approaches with regard to a number of issues under the Cadillac tax and invites comments on these approaches.

The Cadillac tax provision, as part of ACA, taxes the amount of an employee’s “excess benefit.” The excess benefit is the amount by which the monthly cost of an employee’s employer-sponsored health coverage exceeds the annual limitation.
For 2018, the dollar limits are:

· $10,200 per employee for self-only coverage; and
· $27,500 per employee for other-than-self-only coverage.

The tax amount for each employee’s coverage will be calculated by the employer and paid by the coverage provider.

The Cadillac tax applies to “applicable employer-sponsored coverage” (both insured and self-insured). Applicable employer-sponsored coverage is coverage under any group health plan made available to the employee by the employer, excludable from the employee’s gross income under Code Section 106. Applicable coverage also includes health FSAs, HSAs, on-site medical clinics, retiree coverage, multiemployer plans and coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance (if paid on a pre-tax basis or a Section 162(l) deduction is allowed).

Proposed or final regulations have not yet been issued on the ACA’s Cadillac tax provision.

Public comments may be submitted to the IRS until May 15, 2015.