On December 18th, 2015, President Barack Obama signed into a law a bill that delays implementation of the Cadillac Tax until 2020.
Beginning in 2018, the Affordable Care Act (ACA) imposes a 40 percent excise tax on high-cost group health coverage, also known as the “Cadillac tax.”
On July 30, 2015, the IRS issued additional information (Notice 2015-52) to continue the process of developing guidance to implement the Cadillac tax. This provision taxes the amount of an employee’s “excess benefit”, which 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.
While we encourage all clients to log-in to their employer portal (CBGBconnect) to download our full Health Care Reform Bulletin on this topic, here are a few key points to note regarding the latest guidance:
- 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. For example, if an employee elects to contribute to an FSA for a plan year, the employee’s total contributions would be allocated ratably to each calendar month of the plan year, even though the entire amount would be available to reimburse qualified medical expenses on the first day of the plan year.
- FSAs with Employer Flex Credits: The IRS is considering providing a safe harbor to avoid double counting when taking into account salary deferral amounts that are carried over from one year to another year in determining the cost of coverage in both the year of contribution and the subsequent year. Under this safe harbor, the cost of applicable coverage for the plan year would be the amount of an employee’s salary reduction without regard to carry-over amounts. Unused amounts that are carried over would be taken into account when initially funded by salary reduction, but would be disregarded when used to reimburse expenses in a later year.
- Notice and Payment: The IRS is considering designating the filing of Form 720, the Quarterly Federal Excise Tax Return, as the appropriate method for the payment of the tax. Although Form 720 is generally filed quarterly, under this approach, a particular quarter of the calendar year would be designated for the use of Form 720 to pay the Cadillac tax.
These are just a few of the highlights from the latest guidance issued by the IRS regarding the Cadillac Tax provision. If you would like to receive a copy of our detailed Compliance Bulletin on this topic, please contact our team today.