Cadillac Tax: IRS Developing Guidance and Invite to Comment

IRS issued Notice 2015-16 to begin implementation of the Cadillac tax for 2018.

IRS issued Notice 2015-16 to begin the process of developing guidance to implement the Cadillac tax. Proposed or final regulations have not yet been issued on the ACA’s Cadillac tax provision.

This notice describes potential approaches with regard to a number of issues under the Cadillac tax and invites comments on these approaches. Public comments may be submitted to the IRS until May 15, 2015.

Taxpayers may not rely on the information provided in Notice 2015-16. However, the IRS notes that these potential approaches could be incorporated in future proposed regulations.

Overview of the Cadillac Tax

The Cadillac tax provision is found in Internal Revenue Code (Code) Section 4980I. This provision taxes the amount of an employee’s “excess benefit.” The excess benefit 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.

The cost of applicable coverage for purposes of the Cadillac tax is determined under rules similar to those used for determining the COBRA applicable premium. The tax amount for each employee’s coverage will be calculated by the employer and paid by the coverage provider.

Comment Submissions

The IRS invited comments on the issues addressed in the notice and on any other issues under the Cadillac tax provision. The IRS also intends to issue another notice inviting comments on additional issues. The comments received by the IRS are expected to be used to draft proposed regulations.

Comments should be submitted no later than May 15, 2015, and should reference Notice 2015-16. Comments may be sent electronically to: Notice.comments@irscounsel.treas.gov, or mailed to: CC:PA:LPD:PR (Notice 2015-16), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

Reliance

Taxpayers may not rely upon Notice 2015-16 for guidance regarding the Cadillac tax provision. The IRS also specified that no inference should be drawn from the notice concerning any provision of Section 4980I other than those addressed in the notice or concerning any other section of the ACA or COBRA.

DISCLOSURE

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The information provided is for informational purposes only and does not constitute legal advice. The information above contains only a summary of the applicable legal provisions and does not purport to cover every aspect of any particular law, regulation or requirement. Depending on the specific facts of any situation, there may be additional or different requirements. This is to be used only as a guide and not as a definitive description of your compliance obligations.