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Regulation and Compliance > Federal Regulation > IRS

IRS Wants Your Advice About Obamacare Cadillac Plan Tax

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The Internal Revenue Service (IRS) is asking commenters for ideas about how it ought to write the rules for the “Cadillac plan tax.”

IRS officials have put the request for commenters’ thoughts in IRS Notice 2015-16, which deals with Internal Revenue Code (IRC) Section 4980I.

Drafters of the Patient Protection and Affordable Care Act (PPACA) added IRC Section 4980I to impose a 40 percent excise tax on “high cost employer-sponsored coverage,” in an effort to raise revenue and mobilize employers and insurers to help hold down the overall cost of health care and health benefits.

Some Republicans also accept the idea of setting a cap on tax breaks for high-value health coverage.

PPACA calls for the Cadillac plan tax to apply for tax years starting after Dec. 31, 2017. In 2018, the tax could apply to individual coverage with a value of at least $10,200 and family coverage with a value of at least $27,500.

Officials at the IRS, an arm of the Treasury Department, are asking for commenters’ thoughts on how the IRS ought to define “applicable coverage” for Cadillac plan tax purposes, determine the cost of that coverage, and adjust the statutory dollar thresholds that govern when the tax kicks in.

Comments are due May 15.

The IRS expects to ask for another round of comments later this year, to get ideas about how to calculate and assess the excise tax, officials say.

The IRS listed Karen Levin of the Office of Associate Chief Counsel for Tax Exempt and Government Entities as the principal author of the notice.

For a look at the kinds of questions Levin and her colleagues are asking, read on.


1. Officials want to know if they can exclude some types of benefits from the benefits value calculations.

Officials say they want to exclude the kinds of benefits traditionally “excepted” from Health Insurance Portability and Accountability Act (HIPAA) requirements and other major medical plan requirements, such as self-insured dental coverage, self-insured vision coverage and employee assistance programs (EAPs), from health benefits value calculations.

“Commenters are requested on any reasons why Treasury and IRS should not implement this approach,” officials say.

Officials also are asking how they should treat health reimbursement arrangements (HRAs), and how they should treat groups of related employers.

Officials note that PPACA requires them to base the income calculation rules on the premium value calculation rules used for COBRA continuation benefits, but that they also want to harmonize the rules with traditional group health market rules as much as possible.


2. Officials want to know how to keep employers from using changes in calculation methods to hold down health benefits value totals.

When employers calculate former employees’ COBRA premiums, for example, they typically use either an “actuarial cost method” or a “past cost method” to decide how much the COBRA premium ought to be.

The IRS is thinking about requiring a plan that picks a COBRA premium determination method to stick with that method for at least five years in typical situations, and to require a plan to use the actuarial basis method for two years if there is a significant problem with using the past cost method. Officials are asking whether they should apply a similar rule to Cadillac plan tax calculations.

Ben Franklin on a bill

3. Officials want ideas about when and how they should lighten the excise tax burden.

Section 4980I lets the IRS increase the high-value threshold to reflect inflation after 2018, and it lets the IRS adjust the threshold for age, gender or employment in a high-risk occupation, even in 2018.

“Comments are requested on whether it would be desirable and possible to develop safe harbors that appropriately adjust dollar limit thresholds for employee populations with age and gender characteristics that are different from those of the national workforce,” officials say.

Officials also are asking about how to implement adjustments for high-risk professions.

See related content on ThinkAdvisor’s 22 Days of Tax Planning Advice: 2015 home page.


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