IRS Proposes Various Approaches to Cadillac Tax Implementation

IRS released Notice 2015-16 on February 23, 2015.  The notice describes potential approaches the IRS may take in developing regulations to implement the Cadillac Tax, which imposes a 40% excise tax on high cost employer-sponsored health coverage in excess of a statutory dollar limit.  The tax applies if the cost of coverage is in excess of $10,200 per employee for self-only coverage and $27,500 per employee for other than self-only coverage.  The issues addressed in Notice 2015-16 primarily relate to:

(1) defining the coverage to which the tax applies,

(2) determining the cost of applicable coverage, and

(3) applying the annual statutory dollar limit to the cost of applicable coverage.

Significant for many employers: the cost of applicable coverage will most likely include amounts made available under a Health Reimbursement Arrangement (HRA), as well as both employer and employee salary reduction contributions to Health Flexible Spending Accounts (Health FSAs), Health Savings Accounts (HSAs), and Archer MSAs.  In addition, Notice 2015-16 describes various potential approaches where an employee is covered by both individual coverage (for example an employee may have self-only major medical coverage and supplemental coverage (such as an HRA) that covers the employee and the employee’s family.  The notice invites comments on various potential approaches to these and other issues raised by the Cadillac Tax.

icon Notice 2015-16

Author: Erwin Kratz

Mr. Kratz practices in the areas of ERISA and employee benefits law, focusing on tax and regulatory matters relating to qualified and nonqualified deferred compensation and welfare benefits.