For taxable years beginning in 2018, the Affordable Care Act (ACA) imposes a 40 percent excise tax on high-cost group health coverage. This tax is also known as the “Cadillac tax.” On July 30, 2015, the Internal Revenue Service (IRS) issued Notice 2015-52 to continue the process of developing guidance to implement the Cadillac tax. This notice supplements Notice 2015-16, issued on Feb. 23, 2015. The IRS has invited comments on the issues addressed in either Notice, to be submitted no later than Oct. 1, 2015. Comments are expected to be used to draft proposed regulations that will be issued in the future.

At this time, proposed or final regulations have not been issued on the ACA Cadillac tax provision. Taxpayers may not rely on the information provided in Notice 2015-16 or Notice 2015-52.

The Cadillac tax provision 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 statutory dollar limits are:

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

The cost of applicable coverage for purposes of the Cadillac tax is determined under rules similar to those used for determining the COBRA applicable premium.

Who Pays the Cadillac Tax?
The employer will calculate the Cadillac tax amount for each employee’s coverage. The entity responsible for paying any Cadillac tax amount owed is the “coverage provider.” For this purpose, the “coverage provider” is:

• The health insurance issuer, in the case of an insured group health plan;
• The employer, in the case of a health savings account (HSA) or Archer medical savings account (Archer MSA); and
• The person that administers the plan benefits, in the case of any other applicable coverage.

Employer Aggregation
For purposes of the Cadillac tax, all employers treated as a single employer under Code Section 414(b), (c), (m) or (o) are treated as a single employer.

Calculating the Cost of Applicable Employer-sponsored Coverage
The Cadillac tax applies to “applicable employer-sponsored coverage.” In addition to traditional group health plans, this generally includes coverage under certain HSAs, Archer MSAs, health flexible spending arrangements (FSAs) and health reimbursement arrangements (HRAs).

The amount of any Cadillac tax owed is calculated based on the “excess benefit” with respect to an employee for any taxable period. The excess benefit is the excess of the aggregate cost for the month over the applicable dollar limit for the employee for the month.

Taxable Period
According to Notice 2015-52, the IRS anticipates that the taxable period will be the calendar year for all taxpayers.

Determination Period
Employers will calculate the amount of any Cadillac tax that a coverage provider may owe for a taxable period, and then must notify both the IRS and the coverage provider of the amount of the excess benefit, and the tax must be paid by the coverage provider. Accordingly, the IRS anticipates that employers will have to determine the cost of applicable coverage for a taxable year sufficiently soon after the end of that taxable year in order to enable coverage providers to pay any applicable tax in a reasonably timely manner.

HSAs, Archer MSAs, FSAs and HRAs
The IRS is considering an approach for calculating the cost of applicable coverage for HSAs, Archer MSAs, FSAs and HRAs that are applicable coverage. Under this allocation rule, contributions to account-based plans would be allocated on a pro-rata basis over the period to which the contribution relates (generally, the plan year), regardless of the timing of the contributions during the period.

Age and Gender Adjustment to the Dollar Limit
The annual dollar limits for the Cadillac tax can be increased based on the age and gender characteristics of an employer’s workforce, if the cost of providing coverage would be higher for a particular employer’s workforce in comparison to the national workforce.

To establish the age and gender characteristics of the national workforce, the IRS is considering using the Current Population Survey for this purpose, as summarized in Table A-8a, Employed Persons and Employment-Population Ratios by Age and Sex, Seasonally Adjusted (Table A-8a), published annually by the Department of Labor (DOL) Bureau of Labor Statistics (BLS).

The IRS anticipates that it will publish adjustment tables to facilitate the calculation of the age and gender adjustment. A specific seven-step approach is being considered for the development of these tables and the calculation of the age and gender adjustment.

Notice and Payment
The IRS is considering both the form in which the employer must notify the various coverage providers and the IRS of any Cadillac tax due, and the time at which that information must be provided.

For more detail on the above, click the below link. For questions regarding the Cadillac tax and it’s implications to your business, contact your NEEBCo representative.

IRS Issues Notice 2015-52 on Cadillac Tax Implementation.