Smart Benefits: New IRS Notice Issued on Cadillac Tax
Monday, September 07, 2015
A second IRS notice released at the end of July addresses the 40 percent ACA excise tax on plans that provide coverage exceeding a certain dollar limit starting in 2018 – and reveals who may have to pay.
In February, the IRS issued a notice that addressed the definition of applicable coverage, the determination of the cost of applicable coverage, and the application of the dollar limit to determine any excess benefit subject to the excise tax. This new notice supplements the first one by discussing a number of additional issues, including identification of taxpayers who may be liable for the tax.
Under the Internal Revenue Code, each coverage provider must pay the tax on its applicable share of the excess benefit with respect to an employee. The coverage provider is (A) the health insurance issuer for applicable coverage under a group health plan, (B) the employer, for applicable coverage under an HSA or Archer medical savings account, and (C) the person that administers the plan benefits for any other applicable coverage. But the “person that administers the plan benefits” is not defined. Under one approach discussed in the notice, it would be the person responsible for performing the day-to-day functions that constitute administration of plan benefits while under a second approach, it would be the person with ultimate authority or responsibility under the plan or arrangement with respect to the administration of the plan benefits, regardless of whether that person routinely exercises that authority or responsibility.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe notice also contained the Treasury and IRS’ considerations regarding a number of other aspects of the future regulations:
• whether some or all of the income tax reimbursement could be excluded from the cost of applicable coverage, and how to apply the described tax reimbursement formula if it can be excluded
• different ways the regulations may allocate contributions to HSAs, Archer MSAs, FSAs, and HRAs
• how and in what form employers would report the calculation of the amount of the excess benefit subject to the tax
The IRS is seeking public comment on all of the issues addressed in the notice, which will be the final step before drafting and releasing the proposed regulations. Comments are due by October 1, 2015.
Rob Calise is a founding partner of Cornerstone Group, where he helps clients control the costs of employee benefits by focusing on consumer driven strategies and on how to best utilize the tax savings tools the government provides. Rob serves as Chairman of the Board of United Benefit Advisors, and is a board member of the Blue Cross & Blue Shield of RI Broker Advisory Board, United HealthCare of New England Broker Advisory Board and Rhode Island Business Healthcare Advisors Council. He is also a member of the National Association of Health Underwriters (NAHU), American Health Insurance Association (AHIA) and the Employers Council on Flexible Compensation (ECFC), as well as various human resource associations. Rob is a graduate of Bryant University with a BS in Finance.
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