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IRS Releases Initial Guidelines on Excise Tax for High-Cost ‘Cadillac’ Plans Under ACA
On Feb. 23, the IRS released initial guidelines on the Affordable Care Act’s 40 percent excise tax on highcost “Cadillac” health plans.
Notice 2015-16 addresses several areas under IRS code section 4980I, including the definition of
applicable coverage, how the cost of the coverage is determined and “the application of the annual
statutory dollar limit to the cost of applicable coverage.”
The statute provides two baseline dollar limits for the 2018 plan year: $10,200 for self-only coverage
and $27,500 for the other-than-self-only coverage. Adjustments are to apply to increase those
amounts.
Generally, the cost would be based upon the amount former employees would bear to continue
coverage under an employer’s plan after leaving employment under COBRA requirement. The agency
plans to include in the calculations for the cost of coverage employer contributions to health savings
accounts and health flexible-spending arrangements.
A survey conducted by Towers Watson indicates that nearly half of the U.S. employers anticipate
triggering the excise tax in 2018.
The IRS and Treasury Department plan to release another notice before issuing proposed rules under
Section 4980I. The upcoming notice would address issues not found in the above Notice 2015-16,
including procedural issues related to the calculation of the tax and how it would be assessed.
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