IRS Issues Initial ‘Cadillac' Tax Guidance, Welcomes Comments on Various Topics


The Internal Revenue Service released the first piece of guidance on the ACA's 40 percent excise tax on high-cost health plans set to take effect in 2018 in Notice 2015-16.

“This notice is intended to initiate and inform the process of developing regulatory guidance” regarding the Affordable Care Act's 40 percent excise tax under tax code Section 4980I, informally known as the “Cadillac” tax, the IRS said in the notice, issued Feb. 23.

The notice addresses several areas of interest under Section 4980I, including the definition of applicable coverage, how the cost of applicable coverage is determined and “the application of the annual statutory dollar limit to the cost of applicable coverage.”

The IRS and the Treasury Department plan to put out another notice before ultimately issuing proposed rules under Section 4980I. That notice will address issues not featured in Notice 2015-16, including procedural issues related to the calculation of the tax and how it will be assessed, the notice said.

Applicable Coverage

Section 4980I(d)(1)(A) defines applicable coverage as “coverage under any group health plan made available to the employee by an employer which is excludable from the employee's gross income under section 106, or would be so excludable if it were employer-provided coverage,” within the meaning of such section 106, the notice said.

A wide array of coverage is considered applicable coverage under Section 4980I, including health flexible spending accounts, Archer medical savings accounts, health savings accounts, governmental plans, coverage for on-site medical clinics, retiree coverage and multiemployer plans, the notice said.

The IRS and Treasury said future guidance is expected to include “executive physical programs” and health reimbursement accounts in the definition of applicable coverage.

The agencies expect to include employer contributions to HSAs and Archer MSAs in applicable coverage, and exclude employee after-tax contributions to HSAs and Archer MSAs.

In addition, Treasury and the IRS said they anticipate future proposed rules will exclude on-site medical clinics “that offer only de minimis medical care to employees” from applicable coverage.

Comments are requested on the treatment of on-site medical clinics that meet criteria in the Consolidated Omnibus Budget Reconciliation Act regulations that provide services in addition to first aid, including immunizations and the treatment of work-related injuries.

Treasury and the IRS are also considering whether it is appropriate to exclude from applicable coverage certain excepted benefits, including group limited-scope vision and dental coverage and employee assistance programs, the notice said.

Excerpted from a story that ran in Pension & Benefits Daily (02/23/2015).

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