The legislation passed by Congress and signed by President Trump on January 23, 2018 to continue funding the government through February 8, 2018 also delays the “Cadillac Tax” another two years.
The Cadillac Tax is now not scheduled to become effective until 2022. While it is likely future Congresses will continue to delay, or perhaps eliminate the tax entirely, employers and others that sponsor Cadillac plans should continue to monitor the situation and have contingencies to deal with it if the tax does in fact go into effect.
See our prior post on this related topic: IRS Proposes Various Approaches to Cadillac Tax Implementation
The IRS has published its 2016–2017 Priority Guidance Plan containing 281 projects that are priorities for allocation of its resources during the twelve-month period from July 2016 to June 2017.
Significant employee benefits issues prioritized for guidance in the next year include:
- Additional guidance on the determination letter program, including changes to the pre-approved plan program.
- Updates to the Employee Plans Compliance Resolution System (EPCRS) to reflect changes in the determination letter program and to provide additional guidance with regard to corrections.
- Final regulations on income inclusion under §409A.
- Guidance to update prior §409A guidance on self-correction procedures.
- Final regulations under §457(f) on ineligible plans.
- Guidance on issues under §4980H (the Employer Mandate).
- Regulations under §4980I regarding the excise tax on high cost employer-provided coverage (the Cadillac Tax)
- Regulations updating the rules applicable to ESOPs.
- Regulations under §401(a)(9) on the use of lump sum payments to replace lifetime income being received by retirees under defined benefit pension plans.
- Guidance regarding substantiation of hardship distributions.
- Guidance on the §403(b) remedial amendment period.
Notably absent is any mention of guidance on the nondiscrimination rules applicable to fully-insured medical plans, which were included in the Affordable Care Act. The Treasury Department and the IRS, as well as the Departments of Labor and Health and Human Services (collectively, the Departments), previously determined in Notice 2011-1 that compliance with the nondiscrimination provisions will not be required (and thus, any
sanctions for failure to comply do not apply) until after regulations or other administrative guidance of general applicability has been issued. Therefore, for the foreseeable future fully insured plans can continue to discriminate in favor of highly compensated individuals in ways the self-insured plans cannot under Code Section 105(h).
IRS 2016–2017 Priority Guidance Plan
The 2016 omnibus spending bill unveiled by Congressional leaders on December 15 and signed by the President on December 18 includes a two year delay in the Cadillac Tax. In addition to delaying the Cadillac Tax until 2020, the bill makes the tax deductible for employers.
We will keep an eye on further developments in this field and will continue to update our readers as necessary. In the meantime, we recommend employers continue to monitor their glide-path toward implementation of the tax, so they can take appropriate steps to avoid incurring the tax, or minimize its impact. This includes obtaining an assessment of the likelihood of incurring the tax based on current plan design and participant behavior.
Consolidated Appropriations Act, 2016
Prior Post: 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.