The IRS is continuing its pre-regulatory dialogue on the 40 percent excise tax on high-cost health plans with a notice addressing which taxpayers may be liable for the tax and the allocation of the tax among applicable employers.

Notice 2015-52, released July 30, also addresses the cost of applicable coverage and age and gender adjustments to the dollar limits of the tax. The notice is meant to supplement the Internal Revenue Service's initial notice on the tax, Notice 2015-16, which discussed other issues surrounding the Cadillac tax.

Under tax code Section 4980I, which was added by the Affordable Care Act, the entity providing health coverage will be liable for the excise tax. The coverage provider's identity depends on the type of coverage provided, the notice said. That means the coverage provider for an insured group health plan is the health insurance issuer and the provider for health savings accounts and Archer medical savings accounts is the employer.

However, the provider for all other applicable coverage is only defined in the statute as “the person that administers the plan benefits,” the notice said. Because of this, the IRS is considering different approaches to determine the identity of the person administering benefits, the notice said.

Under the first approach, the person administering the benefits would be the person performing the day-to-day functions of the plan, most likely a third-party administrator for self-insured benefits, the IRS said.

Under the second approach, the person administering the benefits would be the person with the “ultimate authority or responsibility” under the plan or arrangement for the administration of plan benefits. This person most likely would be identified through the terms of the plan document, the notice said.

Cost of Coverage

The IRS anticipates that employers will be required to determine the applicable cost of coverage provided during the taxable year “sufficiently soon” after the end of the year so that the tax can be paid in a timely fashion, the notice said. While Notice 2015-16 asked for comments on this issue, the IRS is asking for more feedback in this area.

The IRS anticipates potential timing issues will vary for insured and self-insured plans and similarly will be different for HSAs, Archer MSAs, health flexible spending accounts and health reimbursement arrangements, the notice said.

The notice also addressed the possibility that if an entity other than the employer is the coverage provider, and therefore liable for the excise tax, “that person may pass through all or part of the amount of the excise tax to the employer in some instances.”

If that occurs and the coverage provider is reimbursed for paying the tax, those funds will be considered additional taxable income because the tax isn't deductible, the notice said.

“As a result, it is anticipated that the amount the coverage provider passes through to the employer may include not only the excise tax reimbursement, but also an amount to account for the additional income tax the coverage provider will incur (the income tax reimbursement),” the notice said.

The notice said the IRS anticipates that future regulations will exclude any reimbursement for the excise tax from the cost of applicable coverage.

“Treasury and IRS are also considering whether some or all of the income tax reimbursement could be excluded from the cost of applicable coverage. However, Treasury and IRS are concerned that a methodology for excluding an income tax reimbursement may not be administrable, given the potential variability of tax rates and other factors among different coverage providers and potential difficulties in determining and excluding the reimbursement amount,” the notice said.

Comments on Notice 2015-52 and any additional comments on Notice 2015-16 are due by Oct. 1, the notice said. The notice is scheduled to appear in Internal Revenue Bulletin 2015-33, dated Aug. 17.

Excerpted from a story that ran in Pension & Benefits Daily (07/31/2015).

Stay on top of the latest industry trends and news coverage with a free trial to the Benefits Practice Resource Center.