The Internal Revenue Service (IRS) and the Department of the Treasury (DOT) issued Notice 2015-52, the second of its kind, to provide information on the 40 Percent Excise Tax that will affect healthcare coverage providers when it goes into effect in 2018. Due to its impact on high-cost healthcare plans, the tax was given the nickname "Cadillac Tax." Now, the IRS and DOT are asking for public comments on certain issues with the regulation to propose amendments to the Cadillac Tax's stipulations.
The first notice
Notice 2015-16 was issued in February 2015 and asked for public comment on a number of concerns, including how the cost of plans should be decided upon, what falls under applicable insurance and the limit to calculate the tax. Now that the new notice has been released, it's important to understand the tax in its entirety and how it affects your company.
What's being taxed?
The Cadillac Tax is targeted at healthcare plans that exceed $10,200 for individual coverage and $$27,500 for family plans. Why those numbers? The cost limit was calculated as more than twice the average yearly health coverage contributions made by employers in 2010, according to Forbes. The 40 percent tax only applies to the additional money over the threshold instead of the full price of the coverage and the limits would be adjusted annually to account for inflation.
Kelly Phillips Erb of Forbes gave this example: A $15,000 healthcare plan from your employer exceeds the individual limit of $10,200 by $4,800. That excess coverage is subject to the 40 percent tax rate, resulting in the need for your company or insurance provider to pay $1,920 as the excise tax.
Who is being taxed?
The Cadillac Tax falls on the employer or the insurance provider, depending on the type of insurance, instead of employees. Insured group health plans require the insurance provider to pay the tax, while self-insured options, including Health Savings Accounts, obligate employers to cover the fees.
What's the goal of the tax?
The objective of the Cadillac Tax is to compel all providers and employers to lower their excess spending on healthcare and share some of the cost with workers, as well as to help finance the expansion of Patient Protection and the Affordable Care Act, also known as ObamaCare.
When and how will the tax be paid?
That's where the public comments come into consideration. The IRS has many questions it is approaching from different standpoints and it wants your company to help it decide. The organization proposed the Cadillac Tax be paid at the end of each calendar year, with no deductions, after an employer has figured out how much excess money it spent on coverage, if any. Coverage providers would then be notified, as well as the IRS, for collection purposes. While no downward arrangements would be granted, the IRS also recommended an increase in the spending limit, dependent on the age and gender of a company's employees in correlation with the national workforce.
Lastly, the IRS is thinking about using Form 720, the Quarterly Federal Excise Tax Return, to pay for the tax. The form already includes environmental, medical device and foreign insurance taxes.
Next steps for human resources
Since the thresholds have already been set, companies and their human resources teams should take a look at their current coverage to see if they exceed the limit and by how much. Calculating this amount prepares your business for the cost of the tax and helps HR pinpoint the areas of health insurance that can be trimmed back. While reducing coverage is an option, HR Dive suggested introducing wellness programs and disease management to keep employees healthier and reduce the number of insurance claims.
HR should also send in its comments regarding the Excise Tax, if possible. The IRS's notice is an alert of the Oct.1, 2015 deadline for public opinion, which companies should disclose if they hope to have any effect on the regulation.
The IRS wants your opinion
Public Comment regarding the Excise Tax, should be sent in by Oct.1, 2015. Comments should include a reference to Notice 2015-52, according to Forbes. You can mail your submissions to CC:PA:LPD:PR (Notice 2015-52), Room 5203, Internal Revenue Service, P.O. Box Box 7604, Ben Franklin Station, Washington, DC 20044.