James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comKey Contacts
Back
Introducing the Cadillac tax
On July 31, the IRS and the Treasury issued Notice 2015-52 that explained all the potential issues and approaches of the proposed Cadillac tax regulations, according to the National Law Review. The Cadillac tax requires compliance from employers and thus, Notice 2015-52 calls for business owners to begin planning for the health care tax implications.
The statute is referred to as the Cadillac tax because it is designed to impact employer-sponsored rich or premium health plans for executives and senior managers in addition to super-rich health benefits for employees.
The new Cadillac tax
The Cadillac tax, Sec. 4980I, will impose a 40 percent nondeductible excise tax on the aggregate cost of employer-sponsored health coverage that exceeds a statutory dollar limit. Effective 2018, the Cadillac tax will raise the dollar limits for self-only coverage to $10,200 and $27,500 for family coverage as part of the Affordable Care Act.
The taxes can be assumed by employer
The employer is the coverage provider for health savings accounts and Archer medical savings accounts. Following the end of each calendar year, excise taxes will be imposed on the employer if the cost of applicable coverage for an employee exceeds the dollar limit in any month. It is then the responsibility of the employer to calculate the excise tax that applies to each employee, and contact the coverage provider as well as the IRS. Further, the employer will calculate the amount of tax reimbursement they will owe to the coverage provider.
The significance of the tax
One the main issues related to the monthly calculations of the tax is that myriad arrangements can significantly raise the benefits limits as these costs may not be known till the end of the coverage year. According to a 2014 Towers Watson & Co. study, the tax will hit half of all employers in 2018 and more than 82 percent by 2023.
However, another main issue for insurers and employers is that the Cadillac tax may result in double taxation. Under the statute, insurers are required to pay the excise tax, but employers then reimburse insurers for the tax amount. This income is then treated as income for the insurer, which means it is subject to taxation for a second time.
According to Notice 2015-52, the IRS has not decided how the tax will be collected.
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Related Posts
See all
Does Your Homeowners Insurance Provide Adequate Coverage?
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Author: Jesse M. Dimitro
Understanding the Importance of a Non-Contingent Offer
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Author: Jesse M. Dimitro
Fred D. Zemel Appointed Chair of Strategic Planning at Scarinci & Hollenbeck, LLC
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Author: Scarinci Hollenbeck, LLC
Novation Agreement Process: Step-by-Step Guide for Businesses
Big changes sometimes occur during the life cycle of a contract. Cancelling a contract outright can be bad for your reputation and your bottom line. Businesses need to know how to best address a change in circumstances, while also protecting their legal rights. One option is to transfer the “benefits and the burdens” of a […]
Author: Dan Brecher
What Is a Trade Secret? Key Elements and Legal Protections Explained
What is a trade secret and why you you protect them? Technology has made trade secret theft even easier and more prevalent. In fact, businesses lose billions of dollars every year due to trade secret theft committed by employees, competitors, and even foreign governments. But what is a trade secret? And how do you protect […]
Author: Ronald S. Bienstock
What Is Title Insurance? Safeguarding Against Title Defects
If you are considering the purchase of a property, you may wonder — what is title insurance, do I need it, and why do I need it? Even seasoned property owners may question if the added expense and extra paperwork is really necessary, especially considering that people and entities insured by title insurance make fewer […]
Author: Patrick T. Conlon
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
The IRS Issues Notice on Cadillac tax
Author: James F. McDonough
Introducing the Cadillac tax
On July 31, the IRS and the Treasury issued Notice 2015-52 that explained all the potential issues and approaches of the proposed Cadillac tax regulations, according to the National Law Review. The Cadillac tax requires compliance from employers and thus, Notice 2015-52 calls for business owners to begin planning for the health care tax implications.
The statute is referred to as the Cadillac tax because it is designed to impact employer-sponsored rich or premium health plans for executives and senior managers in addition to super-rich health benefits for employees.
The new Cadillac tax
The Cadillac tax, Sec. 4980I, will impose a 40 percent nondeductible excise tax on the aggregate cost of employer-sponsored health coverage that exceeds a statutory dollar limit. Effective 2018, the Cadillac tax will raise the dollar limits for self-only coverage to $10,200 and $27,500 for family coverage as part of the Affordable Care Act.
The taxes can be assumed by employer
The employer is the coverage provider for health savings accounts and Archer medical savings accounts. Following the end of each calendar year, excise taxes will be imposed on the employer if the cost of applicable coverage for an employee exceeds the dollar limit in any month. It is then the responsibility of the employer to calculate the excise tax that applies to each employee, and contact the coverage provider as well as the IRS. Further, the employer will calculate the amount of tax reimbursement they will owe to the coverage provider.
The significance of the tax
One the main issues related to the monthly calculations of the tax is that myriad arrangements can significantly raise the benefits limits as these costs may not be known till the end of the coverage year. According to a 2014 Towers Watson & Co. study, the tax will hit half of all employers in 2018 and more than 82 percent by 2023.
However, another main issue for insurers and employers is that the Cadillac tax may result in double taxation. Under the statute, insurers are required to pay the excise tax, but employers then reimburse insurers for the tax amount. This income is then treated as income for the insurer, which means it is subject to taxation for a second time.
According to Notice 2015-52, the IRS has not decided how the tax will be collected.