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

Filing Requirements for IRS Forms 1094 and 1095

The IRS has released final Forms 1094 and 1095, which will be used to enforce the ACA employer mandate penalties and the individual mandate and tax credit eligibility rules. These forms must first be filed by employers and insurers in early 2016, for the 2015 calendar year. Filing is optional in 2015 for the 2014 calendar year. While we do not recommend voluntary filing, we do recommend employers review the forms and the instructions so they are aware of what filing in 2016 will involve because they need to be gathering the information to report now.

IRS Announces Transition Relief for Employer Payment Plans (IRS Notice 2015-17)

IRS Notice 2015-17 provides transition relief for employers that are not Applicable Large Employers (“ALEs”) (i.e. those with less than 50 FTEs) that pay, or reimburse employees for individual health policy premiums. These “employer payment plans” do not satisfy the ACA market reforms, which exposes the employers to excise taxes under Code § 4980D ($100 per day per affected individual), as of January 1, 2014. Notice 2015-17 provides that the excise tax will not be asserted (1) for 2014 against employers that are not ALEs for 2014 , and (2) for January 1 through June 30, 2015 for employers that are not ALEs for 2015. After June 30, 2015, such employers may be liable for the Code § 4980D excise tax.

icon Notice 2015-17

icon Our subsequent post about reporting and paying the excise tax