Section 4980I, which was added to the Internal Revenue Code by the Affordable Care Act, was originally supposed to take effect in 2018. This tax is commonly called the “Cadillac tax” because it imposes a 40% excise tax on high cost employer sponsored health coverage.
The Consolidated Appropriations Act signed into law on December 18, 2015, delayed the effective date of the Cadillac tax to 2020. And now, in the federal spending bill that was signed into law on January 22, 2018, Congress has again kicked the can down the road with another two-year delay to 2022. This is welcome news for most employers. It is also welcome relief for unions, which have been critical of the Cadillac tax because it could negatively impact bargained health benefits.
Under the Cadillac tax, if the aggregate cost of applicable employer-sponsored coverage provided to an employee exceeds a statutory dollar limit, which is revised annually, the excess is subject to a 40% excise tax.
- On February 23, 2015, the IRS issued Notice 2015-16, which is intended to initiate and inform the process of developing guidance about the excise tax on high cost employer sponsored health coverage. Notice 2015-16 describes potential approaches that could be incorporated in future guidance and invites comments on these potential approaches and other issues under section 4980I.
- On July 30, 2015, the IRS issued Notice 2015-52, which is intended to continue the process of developing regulatory guidance regarding the excise tax on high cost employer-sponsored health coverage under section 4980I. The notice supplements Notice 2015-16 by addressing additional issues under section 4980I, 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, the payment of the applicable tax and further issues regarding the cost of applicable coverage that were not addressed in Notice 2015-16.
To date, no regulations have been issued on the Cadillac tax.