Wednesday August 5th, 2015
One of the few remaining Affordable Care Act (ACA) requirements is a 40 percent excise tax on employer-sponsored health insurance coverage that exceeds specified threshold amounts. Also known as the Cadillac tax, it becomes effective in 2018 and is expected to be a major source of revenue.
As a follow up to Notice 2015-16 from February, Notice 2015-52 covers issues that must be resolved in order to implement that excise tax. These Notices and the subsequent proposed tax rule are paving the way to this tax becoming a reality in 2018.
Employers who offer group coverage must calculate monthly whether or not the aggregate cost of coverage offered exceeds the designated thresholds. The ACA statute specifies, and this Notice confirms, there are three designated payers of the excise tax. Each payer must then pay the excise tax on its applicable share of the excess benefit with respect to an employee for any taxable period.
For fully insured plans, the issuer/carrier is the entity responsible for paying the tax, for Health Savings Accounts (HSAs) and Archer Medical Savings Accounts (MSAs) it is the employer, and for all other coverage, including self-funded plan arrangements, the statute designates that the “person that administers the plan benefits” is liable for paying the tax. That term is not defined in the Code or in the ACA nor is it referenced in other regulations amended by the ACA such as ERISA and the Public Health Service Act.
Therefore, Treasury and IRS are considering two approaches to define this term which will most likely be one of the areas most commented on to the IRS. The first approach deems the responsible party as the one performing the day-to-day functions, such as receiving and processing claims for benefits. The second approach considers the person with ultimate authority or responsibility under the plan for things such as eligibility determination, claims administration and service provider arrangements to be the responsible party.
The employer is responsible for determining the amount of any excise tax due and notifying both the IRS and the coverage provider of the amount of the excess benefit, and the tax is then paid by the responsible party.
Public comments should be submitted by October 1, 2015, and will be considered regarding the proposed regulations.