IRS Releases Notice 2015-52 addressing additional issues under the Cadillac tax

For taxable years beginning in 2018, the Affordable Care Act (ACA) imposes a 40 percent excise tax on high-cost group health coverage. This tax, also known as the “Cadillac tax,” is intended to encourage companies to choose lower-cost health plans for their employees.

On July 30, 2015, the Internal Revenue Service (IRS) issued Notice 2015-52 to continue the process of developing guidance to implement the Cadillac tax. This notice supplements Notice 2015-16, issued on Feb. 23, 2015.

Notice 2015-52 addresses additional issues under the Cadillac tax, including:

  • Identification of the taxpayers who may be liable for the excise tax;
  • Employer aggregation;
  • Allocation of the tax among the applicable taxpayers; and
  • Payment of the applicable tax.

The IRS invites comments on these issues and any other issues under the Cadillac tax. Currently, proposed or final regulations have not been issued on the ACA’s Cadillac tax provision. After considering the comments on both notices, the IRS intends to issue proposed regulations under the Cadillac tax.

Taxpayers may not rely on the information provided in Notice 2015-16 or Notice 2015-52.

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.

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