When the The Patient Protection and Affordable Care Act (often just referred to as “Obamacare”) took effect, one of the most controversial features was the so-called Cadillac tax. The tax was intended to target high cost health care plans, thus earning the moniker “Cadillac.”

The tax hasn’t changed much since it was first dreamed up. It’s still intended to be imposed on high-cost plans and related perks exceeding certain limits (those remain at $10,200 for a single person or $27,500 for a family per year with higher amounts for specific demographics). Those limits were purposefully calculated to be more than twice as much as the average annual health insurance contributions made by employers as of 2010, although as health care costs continue to creep up, that’s no longer the case.

The tax – a whopping 40% – applies only to the amount over the limit. The burden for the tax is not on the employee but the insurers or employers (keep reading), the idea being that it would force insurers and employers to reduce excess health care spending, especially for those at the top. And, of course, it certainly didn’t hurt that the revenue generated by the tax would help offset the cost of Obamacare.

Here’s how the tax was to be calculated:

Let’s say you receive a health care package worth $15,000 from your employer. The individual limit is $10,200. That $15,000 plan would be subject to an excise tax of $1,920 per covered employee.
$15,000 plan – $10,200 limit = $4,800 overage
$4,800 overage x 40% tax rate = $1,920 excise tax

Implementing the tax has been so tricky – and politically dicey – that lawmakers have pushed the effective date out to 2018. 2018 felt like a long time away in 2010. Now that we’re closing in on the end of 2015, it doesn’t seem so far away anymore. Despite the approaching deadline, the Internal Revenue Service (IRS) hasn’t yet published final regulations.

In February of 2015, IRS issued Notice 2015-16 which was intended to discuss a number of potential approaches to the implementation of pieces of the tax. At the time, IRS requested comment on a number of issues including the definition of applicable coverage, how to figure the cost of that coverage, and the caps used to calculate the tax.

In July of 2015, IRS issued Notice 2015-52 (downloads as a pdf) to address even more concerns, including who may be liable for the tax, employer aggregation, allocation of tax and payment of the tax. Here are some of the highlights with a little bit of commentary:

  1. Who is liable for the tax? Here’s the easy answer: the coverage provider. That, of course, leads to the next question…
  2. Who is the coverage provider? The answer to this question depends on the type of coverage. In the case of an applicable group health plan, the coverage provider is the health insurance issuer (by law, an insurance company, insurance service, or insurance organization, including an HMO). With respect to coverage under an HSA or an Archer MSA, the coverage provider is the employer. For all other applicable coverage, the coverage provider is “the person that administers the plan benefits.”
  3. Who is “the person that administers the plan benefits”? This one isn’t clearly defined by law – yet (it’s not even in the original Act). The IRS says there could be two approaches here: (a) the person that administers the plan benefits would be the person responsible for performing the day-to-day functions related to plan benefits, like receiving and processing claims for benefits or responding to inquiries (this is typically a third-party administrator) or (b) the person that administers the plan benefits would be the person that has the ultimate authority or responsibility under the plan with respect to the administration of benefits, regardless of whether that person routinely exercises that authority or responsibility.
  4. So which approach for determining “the person that administers the plan benefits” does IRS like best? The notice doesn’t say – but they are asking for comment from the public (especially those that would be affected).
  5. When it comes to figuring all of this out, who is an employer? On its face, the employer piece is easy. But sometimes, figuring out who an employer is when there are control issues can be complicated. The rule will likely be that all employers treated as a single employer under Section 414 of the Tax Code at subsection (b) controlled groups of corporations, subsection (c) partnerships, subsection (m) employees of an affiliated service group, or subsection (o), a sort of catch all applying to certain entities), will be treated as a single employer. Since that definition could pose some challenges, IRS is asking for comment.
  6. For purposes of the tax, what’s the taxable period? Even though the rules seem to provide for different taxable periods for employers of varying sizes, Treasury and IRS anticipate that the taxable period will be the calendar year for all taxpayers. Since it’s not out of the question that the cost of coverage could vary from month to month (think about HRAs and the like), to figure the tax, the employer will have to figure whether coverage provided to an employee during any month of the taxable period exceeds those caps. IRS is asking for comments on figuring both the determination of the cost of coverage (including reimbursements and other tricky bits) and timing implications.
  7. To keep the caps sensible, the intention has been to adjust the limits for age and gender swings. How does that work? First, there’s going to need to be a baseline. That means that the Treasury will have “to establish the age and gender characteristics of the national workforce.” Piece of cake, right? Fortunately, Treasury has a data set in mind already (it’s attached to the notice) taken from the Department of Labor. The idea is to compare that with similar data (age and gender) taken by an employer as of the first day of the plan year.
  8. Couldn’t compiling that information each year pose legal challenges for employers in other areas? I certainly think so. Don’t get me started.
  9. Assuming that a tax is due, how does it get paid? The law doesn’t say how often – or in what manner – the tax should be paid but the IRS likes the idea of quarterlies using a form 720, Quarterly Federal Excise Tax Return (downloads as a pdf). The form already allows for environmental taxes, fuel taxes, retails taxes, ship passenger taxes, foreign insurance taxes, manufacturers taxes (including the dreaded tax on medical devices) and floor stocks taxes. What’s one more?

Now that you have the basic info, the IRS wants to know what you think. The plan is to issue proposed regulations on the Cadillac tax after taking into consideration comments received in response to these issues and those raised in the prior notice.

Got something to say? Here’s what you need to know:

  • Public comments should be submitted no later than October 1, 2015.
  • Comments should include a reference to Notice 2015-52.
  • You can mail your submissions to CC:PA:LPD:PR (Notice 2015-52), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
  • You can hand deliver your submissions to CC:PA:LPD:PR (Notice 2015-52), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20044 (Monday through Friday only between the hours of 8 a.m. and 4 p.m.)
  • You can email your comments to Notice.comm[email protected] (use “Notice 2015-52″ in the subject).
  • And be nice: all material submitted will be available for public inspection and copying.

One more thing: as much as I would love your comments (I always do) and as much as I hope Commissioner Koskinen browses the blog each morning over his coffee, nothing you post in the comments below will be considered an official response. Be sure to address your comments to IRS using one of the methods noted above.

Want more taxgirl goodness? Pick your poison: follow me on twitter, hang out on Facebook and Google, play on Pinterest or check out my YouTube channel. For cases and tax related docs, visit Scribd.

Source: Forbes