IRS sets out additional approaches to excise tax on high cost plans, seeks comments

The IRS has issued a notice intended to continue the process of developing regulatory guidance regarding the excise tax on high-cost employer-sponsored health coverage under Code Sec. 4980I, which applies to tax years beginning after December 31, 2017. The new notice addressed additional issues, including the identification of the taxpayers who may be liable for the excise tax, employer aggregation, the allocation of the tax among the applicable taxpayers, and the payment of the applicable tax. The notice also addresses further issues regarding the cost of applicable coverage, and seeks comments.

Background. Under Code Sec. 4980I, if the aggregate cost of applicable employer-sponsored coverage provided to an employee exceeds a statutory dollar limit, which is adjusted annually, the excess benefit is subject to a 40 percent excise tax. In Notice 2015-16, the IRS described potential approaches regarding a number of issues that may be incorporated into future regulations, including (1) the definition of applicable coverage, (2) the determination of the cost of applicable coverage, and (3) the application of the dollar limit to the cost of applicable coverage to determine any excess benefit subject to the excise tax.

At least one feature of the new notice should be of particular interest to employers with self-insured plans. This tax is directed mostly at insurers rather than employers, but like many Affordable Care Act changes (such as coverage provider reporting, the market reforms, and PCORI fees) that are aimed at insurers, the changes also directly hit self-insured employer plans. This one, however, might end up differently. Thanks to legislative language that places the taxpaying burden on “the person that administers the plan benefits,” a case can be made that the target should be third-party administrator of the self-insured plan. And the government is considering doing exactly that.

The other approach the government is considering goes higher up the food chain. Under the second approach, 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 the plan benefits (including final decisions on administrative matters), regardless of whether that person routinely exercises that authority or responsibility. The government seeks comments whether the person that administers the plan benefits would be easy to identify under this second approach in most circumstances or whether multiple parties have ultimate authority or responsibility for the different relevant administrative matters with respect to the same benefit package, and whether in most instances this approach would identify an appropriate person as the person that administers the plan benefits.

Excess reimbursements to be subject to reporting. Applicable coverage includes coverage under any group health plan made available to the employee by an employer that is excludable from the employee’s gross income. Employers are required to report on the Form W-2, Wage and Tax Statement (Form W-2), the aggregate cost of applicable coverage. Notice 2012-9, currently permits employers to reduce the amount reported on the Form W-2 by any excess reimbursement included in gross income. Treasury and IRS anticipate that Notice 2012-9 will be modified in the future to make excess reimbursements subject to reporting under Code Sec. 6051(a)(14) and that the forms and instructions will be modified to reflect this change. Taxpayers should continue to follow Notice 2012-9 until modification of that notice is issued.

Comments requested. The Treasury and IRS invite comments on these issues and any other issues under Code Sec. 4980I. After considering the comments on both notices, Treasury and IRS intend to issue proposed regulations. The proposed regulations will provide further opportunity for comment, including an opportunity to comment on the issues addressed in the preceding notices.

Public comments should be submitted no later than October 1, 2015. Comments should include a reference to Notice 2015-52. Send submissions to CC:PA:LPD:PR (Notice 2015-52), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2015-52), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, D.C. 20044, or sent electronically, via the following e-mail address: Include “Notice 2015-52″ in the subject line of any electronic communication.

SOURCE: Notice 2015-52, I.R.B. 2015-33, August 17, 2015.

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