IRS Begins Preparing Cadillac Tax Regulations; Public Input Requested

​Originally posted February 24, 2015 on

In Notice 2015-16, the Internal Revenue Service (IRS) outlines potential approaches for future proposed regulations regarding the excise tax on high cost employer-sponsored health coverage under section 4980I, also known as the Cadillac tax.

The notice is intended to initiate and inform the process of developing regulatory guidance regarding the excise tax on high cost employer-sponsored health coverage under section 4980I of the Internal Revenue Code. Section 4980I, which was added by the Affordable Care Act, applies to taxable years beginning after December 31, 2017.

Under this provision, 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.

The issues addressed in this notice primarily relate to:

  1. the definition of applicable coverage,
  2. the determination of the cost of applicable coverage, and
  3. the application of the annual statutory dollar limit to the cost of applicable coverage. The Department of the Treasury (Treasury) and IRS invite comments on the issues addressed in this notice and on any other issues under section 4980I.

This notice describes potential approaches on a number of issues which could be incorporated in future proposed regulations, and invites comments on these potential approaches.

Treasury and IRS intend to issue another notice before the publication of proposed regulations under section 4980I, describing and inviting comments on potential approaches to a number of issues not addressed in this notice, including procedural issues relating to the calculation and assessment of the excise tax.

After considering the comments on both notices, Treasury and IRS anticipate publishing proposed regulations under section 4980I. The proposed regulations will provide further opportunity for comment, including an opportunity to comment on the issues addressed in the preceding notices.

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