IRS Issues Initial Guidelines on Excise Tax For High-Cost ‘Cadillac' Plans Under ACA

Payroll on Bloomberg Tax is built to get you to the right answer faster and more efficiently. Get all the payroll intelligence you need with Bloomberg Tax expert analysis, perspectives and...

Initial guidelines on the Affordable Care Act's 40 percent excise tax on high-cost “Cadillac” health plans, which is to take effect in 2018, were released Feb. 23 by the Internal Revenue Service.

Notice 2015-16 addresses several areas under Internal Revenue Code Section 4980I, including the definition of applicable coverage, how the cost of the coverage is determined and “the application of the annual statutory dollar limit to the cost of applicable coverage.”

The statute provides two baseline dollar limits for the 2018 plan year: $10,200 for self-only coverage and $27,500 for other-than-self-only coverage. Adjustments are to apply to increase those amounts.

The existing method to determine the cost of employer-provided coverage on Forms W-2 is not intended to be related to the Section 4980I calculations, the IRS said. However, as guidelines under Section 4980I develop, “improved methods for determining the cost of applicable coverage” may be applied for consistency to W-2 reporting criteria, the notice said.

Generally, the cost could be based on the amount former employees would bear to continue coverage under an employer's plan after leaving employment under COBRA requirements, the IRS said. The agency plans to include in the calculations for the cost of coverage employer contributions to health savings accounts and health flexible-spending arrangements. Health-reimbursement account amounts also could be added to the equation, the notice said.

Nearly half of U.S. employers anticipate triggering the excise tax in 2018, a survey by the consulting company Towers Watson said Sept. 23, 2014.

The IRS and the Treasury Department plan to release another notice before issuing proposed rules under Section 4980I. The upcoming notice would address issues not found in Notice 2015-16, including procedural issues related to the calculation of the tax and how it would be assessed, the notice said.

Comments on Notice 2015-16 are due to the IRS by May 15.

To contact the editor on this story: Michael Trimarchi at

Request Payroll