MENUMENU
  • FREE RESOURCES
  • PREMIUM CONTENT
        • SEE MORE
          PREMIUM RESOURCES
  • HR DEEP DIVES
        • Coronavirus (COVID-19) Resources for HR Professionals
          Employment Law
          Labor Law Posting Requirements: Everything You Need to Know
          Recruiting
          businesswoman selecting future employees on digital interfaces
          Recruiting Resources for HR & Hiring Managers
          Performance Management
          vector image of young female making star rating
          Performance Review Resources
          Employment Law
          Understanding Equal Employment Opportunity and the EEOC
          Recruiting
          Onboarding Resources for HR & Hiring Managers
  • CORONAVIRUS & HR

  • LOGIN
  • SIGN UP FREE

HR Morning

MENUMENU
  • FREE RESOURCES
  • PREMIUM CONTENT
        • SEE MORE
          PREMIUM RESOURCES
  • HR DEEP DIVES
        • Coronavirus (COVID-19) Resources for HR Professionals
          Employment Law
          Labor Law Posting Requirements: Everything You Need to Know
          Recruiting
          businesswoman selecting future employees on digital interfaces
          Recruiting Resources for HR & Hiring Managers
          Performance Management
          vector image of young female making star rating
          Performance Review Resources
          Employment Law
          Understanding Equal Employment Opportunity and the EEOC
          Recruiting
          Onboarding Resources for HR & Hiring Managers
  • CORONAVIRUS & HR
  • Employment Law
  • Benefits
  • Recruiting
  • Talent Management
  • Performance Management
  • HR Technology
  • More
    • Leadership & Strategy
    • Compensation
    • Staff Administration
    • Policy & Procedures
    • Wellness
    • Staff Departure
    • Employee Services
    • Work Location
    • HR Career & Self-Care
    • Health Care
    • Retirement Plans

Heads up: 'Cadillac Tax' could cost you more than 40%

DOL penalties, FLSA violations
Christian Schappel
by Christian Schappel
August 5, 2015
2 minute read
  • SHARE ON

The IRS just issued its second set of guidance on the ACA’s “Cadillac Tax,” and it’s sure to get mixed reviews from employers offering decent health benefits. 
As you know, the ACA’s so-called “Cadillac Tax” will impose a 40% non-deductible excise tax on the value of health insurance plans exceeding $10,200 for individuals and $27,500 for family coverage.
The IRS’ latest guidance — Notice 2015-52 — is a follow-up to guidance it issued this past winter addressing future rules governing the calculation and payment of the excise tax.
Both sets of guidance is meant to give plan sponsors and insurers an idea of how the “Cadillac Tax” is to be enforced and administered — but they don’t set forth any concrete rules that must be followed. That comes later via the proposed/final rulemaking process.
For now, the IRS is simply asking employers to review and comment on this guidance to help it shape the final rules.

Who pays the tax?

For the most part, there’s nothing earth-shaking in the latest set of guidance, except the IRS’ answer to one question:
Who will be paying the excise tax?
That is, who’ll actually be writing the check to the IRS?
The IRS said the obligation to pay the tax will fall on the “coverage provider.”
Under an insured group health plan, this will be the health insurer. But it can also be an employer that provides coverage under an HSA or Archer medical savings account — or the “person that administers the plan benefits.”
That means, in many cases the responsibility to cut the tax check will fall on an insurance company or a TPA.

Where expenses, complications get magnified

That, in and of itself, probably won’t alarm you. But here’s where it can get more expensive for plan sponsors:
Naturally, the insurance company or TPA will come back to the plan sponsor seeking reimbursement for this tax payment. But, the IRS is saying that reimbursement will add to the taxable income of the insurer or TPA receiving the reimbursement.
As a result, the IRS is saying those who pay the tax may want “tax gross-ups” to cover the income tax they’d have to pay on the reimbursement.
Bottom line: For many plan sponsors, it now appears the tax will become 40% of the coverage value over $10,200/$27,500 threshold, plus the amount of the tax your insurer or TPA will have to pay on the reimbursement you send to them for paying the tax.
The IRS admits this will be tricky to calculate, because even the gross-ups would be subject to income tax. As a result, the IRS provided a formula in the guidance for calculating the total reimbursement (with gross-ups) plan sponsors may end up shelling out to their insurers or TPAs.
The formula’s located at the bottom of Page 8 of the guidance.

Get the latest from HRMorning in your inbox PLUS immediately access 10 FREE HR guides.

I WANT MY FREE GUIDES

Keep Up To Date with the Latest HR News

With HRMorning arriving in your inbox, you will never miss critical stories on labor laws, benefits, retention and onboarding strategies.

Sign up for a free HRMorning membership and get our newsletter!
  • This field is for validation purposes and should be left unchanged.
HR Morning Logo
  • Facebook
  • Twitter
  • Linked In
  • ABOUT HRMORNING
  • ADVERTISE WITH US
  • WRITE FOR US
  • CONTACT
  • Employment Law
  • Benefits
  • Recruiting
  • Talent Management
  • HR Technology
  • Performance Management
  • Leadership & Strategy
  • Compensation & Payroll
  • Policy & Culture
  • Staff Administration
  • Wellness & Safety
  • Staff Departure
  • Employee Services
  • Work Location
  • HR Career & Self-Care

HRMorning, part of the SuccessFuel Network, provides the latest HR and employment law news for HR professionals in the trenches of small-to-medium-sized businesses. Rather than simply regurgitating the day’s headlines, HRMorning delivers actionable insights, helping HR execs understand what HR trends mean to their business.

Privacy Policy Terms of Service
Copyright © 2021 SuccessFuel

WELCOME BACK!

Enter your username and password below to log in

Forget Your Username or Password?

Reset Password

Lost your password? Please enter your username or email address. You will receive a link to create a new password via email.

Log In

During your free trial, you can cancel at any time with a single click on your “Account” page.  It’s that easy.

Why do we need your credit card for a free trial?

We ask for your credit card to allow your subscription to continue should you decide to keep your membership beyond the free trial period.  This prevents any interruption of content access.

Your card will not be charged at any point during your 21 day free trial
and you may cancel at any time during your free trial.

preloader