"Cadillac" health plan excise tax delayed until 2020.

• Author: LaGarde, Stephen

As originally enacted, Sec. 49801 imposes a 40% excise tax on the difference between the aggregate cost of "applicable employer-sponsored coverage" and a statutory dollar limit for tax years that would have taken effect after Dec. 31, 2017. The Consolidated Appropriations Act, 2016, P.L. 114-113, enacted Dec. 18, 2015, delayed the effective date by two years. Thus, the so-called Cadillac plan excise tax is now scheduled to take effect in 2020.

The baseline dollar limits for 2018 (which remained subject to an adjustment for health care costs prior to 2018) would have been $10,200 for self-only coverage and $27,500 for other coverage. Prior law updated these thresholds for inflation at the consumer price index (CPI) plus 1 percentage point in 2019. The thresholds will be updated at CPI in 2020 and beyond. Medical costs generally are expected to increase faster than either of these inflation measures, meaning that a significant number of employers may find that the tax applies in 2020 if the law is not changed again before then.

Before Congress enacted the Consolidated Appropriations Act, 2016, the IRS published two notices in 2015 to begin the regulatory guidance process. Notice 2015-16 addresses issues primarily relating to: (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.

Key issues addressed by Notice 2015-52 include: (1) identification of the taxpayers who may be liable for the excise tax; (2) employer aggregation; (3) the allocation of the tax among applicable taxpayers; and (4) the payment of the applicable tax. It also addressed certain issues related to determining the cost of applicable coverage that Notice 2015-16 did not address.

Notice 2015-16 and Notice 2015-52 both describe potential approaches the IRS is...