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October 5, 2015

How Should The Internal Revenue Service Handle Implementation Of The Unpopular Cadillac Tax?

Last week, the National Association of Manufacturers (NAM) submitted comments to the Internal Revenue Service on the Affordable Care Act excise tax on high-cost employer-sponsored health care plans, more frequently referred to as the “Cadillac tax.” MSCI worked with NAM to generate the comments. 

The NAM noted the vast majority of U.S. manufacturers voluntarily offer health benefits to attract a skilled workforce and because they believe it is the right thing to do for their employees. As such, the NAM argued that this tax would increase costs for these employers and, in many cases, the employees that receive these benefits. NAM said the additional tax burden would force employers to reduce or modify health coverage they currently provide and noted a recent study by the Kaiser Foundation found 56 percent of the plans sponsored by companies with more than 200 employees would be subject to the tax by 2023. 

While the NAM and MSCI will continue to fight to repeal this tax, the comments offered guidance to the IRS for implementing the tax. For example, the comments said the IRS must give employers the flexibility to consider the costs of coverage for all members of the controlled group when determining any excise tax liability. 

The NAM also recommended allowing for flexibility in identifying the taxpayer responsible for calculating and reporting the excess benefit and the employer liable for any penalty for failure to properly calculate the tax imposed. In order to meet obligations related to the excise tax in a timely manner, the NAM also noted manufacturers need sufficient lead-time to calculate costs. 

The NAM also said the specified time period between the end of the plan year and the time of payment should be long enough to allow for retroactive adjustments that may be made in the months following the end of the plan year. Additionally, the comments agreed with U.S. Treasury Department’s position that contributions to health savings accounts (HSAs), Archer medical savings accounts (MSAs), flexible spending accounts (FSAs) and health reimbursement accounts (HRAs) should be allocated on a pro-rata basis over the period to which the contribution relates, regardless of the timing of the contributions. 

Finally, the NAM said final rules should exempt the value of the coverage attributable to the minimum benefits package mandated by the ACA and that employee benefits plans provided by employers for their retirees, which are exempt from many provisions of the ACA, should be excluded from the definition of applicable coverage. 

Also last week: a Kaiser Family Foundation poll reveal 60 percent of Americans oppose the employee benefits excise tax while only 28 percent support it.