On July 30, the IRS issued Notice 2015-52, which provides guidance regarding the “Cadillac Tax” provision of the Affordable Care Act (ACA). Earlier this year, the IRS issued Notice 2015- 16, which represented the first guidance issued by a regulatory agency regarding the Cadillac Tax and which we discussed in a prior alert. Notice 2015-52 supplements Notice 2015-16 and addresses additional issues relating to the tax.
In particular, the new notice proposes alternatives for clarification regarding who is liable for the tax. Under Section 4980I of the Internal Revenue Code (which codifies the Cadillac Tax), the health insurance issuer is deemed liable for any applicable excise tax in the case of an insured plan and the employer is liable for coverage under an HSA or Archer MSA, but for other coverage, the person liable is “the person that administers the plan benefits.” The Department of the Treasury and the IRS, according to Notice 2015-52, are considering how to define “the person that administers the plan benefits” for purposes of the tax liability. The notice proposes two alternatives: (1) the person responsible for performing day-to-day functions that constitute administration, which would often be a third-party administrator for self-insured plans or (2) the person that has ultimate authority or responsibility with respect to administration.
The notice also invites comments regarding the application of the controlled group rules under Section 414 of the Internal Revenue Code to the Cadillac Tax provisions. Under Section 4980I(f)(9) of the Internal Revenue Code, employers that are treated as a single employer under the controlled group rules of Section 414 of the Internal Revenue Code are aggregated for purposes of the Cadillac Tax. The IRS is inviting comments on the practical difficulties of such application.
The notice also provides guidance regarding the cost of applicable coverage for Cadillac Tax purposes. Based on the mechanics of the statute, employers will need to be able to determine the cost of applicable coverage provided during a taxable year soon after the end of that year to enable payment of any applicable excise tax on a timely basis. The notice invites comments regarding issues with calculating the tax under that timeline. The IRS also seeks comments regarding the mechanics of taxation for coverage providers who pass the tax on to employers. Because the excise tax is not deductible, if a coverage provider is reimbursed for the excise tax by the employer, that coverage provider will be taxed on the amount of the reimbursement and will consequently pass along the increased income tax to employers. While the statute indicates that the excise tax reimbursement itself would not be included in the cost of applicable coverage, it is not clear whether the portion of the reimbursement relating to the increased income tax of the coverage provider would be included in the cost of applicable coverage.
Additionally, the notice provides guidance regarding the age and gender adjustments that may apply to the dollar limits for coverage. The Department of Treasury and the IRS anticipate that adjustment tables will be developed to simplify the calculation of the age and gender adjustments, but the notice invites comments regarding the adjustments.
Comments on Notice 2015-52 and additional comments on Notice 2015-16 are due by October 1, 2015.