After employer and other stakeholder opposition to the “Cadillac Tax” grew into bipartisan support from Congress, President Obama signed into law a two-year delay of the Cadillac Tax on December 18, 2015. This two-year delay is part of Congress’s $1.8 trillion omnibus spending deal, the Consolidated Appropriations Act, 2016 (the Act).
The Cadillac Tax, which was added to the Internal Revenue Code by the Affordable Care Act (ACA), imposes a 40 percent excise tax on employer-sponsored health care coverage that exceeds certain annual indexed dollar limits. The tax was originally to be effective January 1, 2018, and would impose a penalty on employers, health insurers and “persons who administer plan benefits” with regard to high-cost health care coverage.
Now, the earliest that the Cadillac Tax will go into effect is January 1, 2020, although opponents are fervently working to repeal the tax before then. In the meantime, the Act also authorized the U.S. comptroller general and the National Association of Insurance Commissioners to study whether the ACA uses appropriate benchmarks to determine whether the tax should be adjusted to reflect age and gender factors when setting excise tax thresholds.
Although the Cadillac Tax has been delayed for two years, employers should continue to review their health insurance offerings to assess whether benefit changes are needed in the future to avoid the tax. The indexing under the Cadillac Tax will continue while the tax is delayed so that the dollar limits in effect in 2020 will reflect application of indexing had the delay not been enacted. Of perhaps greater significance, the Act makes the Cadillac Tax deductible which will lessen the impact of the tax for certain employers.
Extension of Health Plan Information Due Dates
The IRS recently released Notice 2016-4 which extends the due dates for the 2015 ACA information reporting requirements (both furnishing to individuals and filing with the Internal Revenue Service (IRS)) under Code Sections 6055 and 6056. Specifically, the notice automatically extends the due dates as follows:
- Until March 31, 2016 (instead of February 1, 2016), to provide individuals with Forms 1095-B and 1095-C; and
- Ifnot filing electronically, until May 31, 2016 (instead of February 29, 2016), and if filing electronically, until June 30, 2016 (instead of March 31, 2016), to file Forms 1094-B, 1095-B, 1094-C, and 1095-C with the IRS.
The ACA added Sections 6055 and 6056 to the Internal Revenue Code. Section 6055 requires health insurance issuers, self-insured employers, government agencies and other providers of minimum essential coverage to file and furnish annual information returns regarding coverage provided. Section 6056 requires applicable large employers (generally those with 50 or more full-time employees, including full-time equivalents) to file and furnish annual information returns regarding the coverage the employer offers or does not offer to its full-time employees.
This welcome delay will give employers and other providers of minimum essential coverage more time to ensure that the forms are accurate before being distributed and filed. The IRS noted that they are prepared to accept filings of information returns on Forms 1094-B, 1095-B, 1094-C and 1095-C beginning in January of 2016. Note that employers or other coverage providers that do not comply with these extended due dates are still subject to penalties under section 6722 or 6721 for failure to timely furnish and file. However, the IRS noted that employers and other coverage providers that do not meet the extended due dates are still encouraged to furnish and file, and the IRS will take such steps into consideration when determining whether to abate penalties for reasonable cause. The IRS also stated in the notice that it will take into account other mitigating factors in assessing penalties, such as whether an employer or other coverage provider made reasonable efforts to prepare for reporting the required information to the IRS and furnishing it to employees and covered individuals, by gathering and transmitting the necessary data to an agent to prepare the data for submission, or testing the ability to transmit information to the IRS. The IRS also noted that it will take into account the extent to which the employer or other coverage provider is taking steps to ensure that it is able to comply with the reporting requirements for 2016.