On 12/18/2015, Congress passed the Consolidated Appropriations Act, 2016, also known as the “Omnibus,” that delays the Cadillac tax for two years from 2018 to 2020. This excise tax is expected to be imposed on high-cost employer-sponsored plans. When the tax was originally scheduled for 2018, the threshold amounts were $10,200 per year for individual coverage and $27,500 per year for family coverage. Plans that cost in excess of the threshold amount were to be taxed at 40%. However, these threshold amounts will now be adjusted to a higher figure due to the delay of the effective date of the tax to 2020. Additionally, per the Omnibus, the Cadillac tax will now be tax deductible. President Obama is expected to sign the legislation before midnight on 12/22/2015.
The IRS has released further guidance on the development of the Cadillac tax applicable in 2018. Notice 2015-52 addresses issues including the following:
- Identifying who is liable for the Cadillac 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 after consideration of the comments, intends to release proposed regulations. Public comments must be submitted by 10/1/2015.
What is the “Cadillac Tax?” As part of the ACA regulations, a 40% excise (or “Cadillac”) tax will be imposed on employers that offer plans that exceed the determined statutory dollar limit.
Do I need to do anything now? No. This law goes into effect on 1/1/2018. We will update you when the IRS releases more guidance on the issue.
Pursuant to the ACA, effective 1/1/2018, a 40% excise or “Cadillac” tax will be imposed on any employer with an aggregate cost of applicable employer-sponsored coverage that exceeds a certain statutory dollar limit, which is revised annually. The intent of the tax is to encourage employers to offer more cost-effective group health plans.
The IRS recently released Notice 2015-16, which discusses potential approaches to the Cadillac tax, including, but not limited to, the definition of applicable coverage, the determination of the cost of coverage, and the application of annual statutory dollar limits to the cost of applicable coverage. The IRS is requesting comments on these issues by 5/15/2015. The IRS also intends to issue another notice to address other concerns regarding the Cadillac tax that were not addressed in the above notice. After receiving comments on both notices, the IRS intends to release proposed regulations on the Cadillac tax.
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