Even though the “Cadillac Tax” doesn’t take effect until 2018, it’s one of HR pros’ biggest concerns regarding the entire Affordable Care Act. Now, for the first time, the feds are offering guidance on how this tax will be calculated.  

Starting in 2018, employers will be required to pay a 40% excise tax on the value on any healthcare coverage that exceeds $10,200 for single coverage or $27,500 for families in premium costs.

Many firms have already determined they’re likely to be impacted by this tax in 2018 or soon after.

But even though they’ve been making decisions in anticipation of that tax, until now, the feds haven’t given any details on what to expect.

1. Pretax HSA contributions

In the guidance, Notice 2015-16, the IRS was clear that employer contributions to an HSA are subject to the 40% Obamacare tax. What’s less clear, however, is exactly how employee pretax contributions will be treated.

Specifically, the IRS said that the agencies (HHS, DOL and IRS/Treasury):

anticipate that future proposed regulations will provide (1) employer contributions to HSAs, including salary reduction contributions to HSAs, are included in applicable coverage, and (2) employee after-tax contributions to HSAs are excluded from applicable coverage.

Based on how the IRS plans to treat pretax HSA contributions, many employers will be subject to the Cadillac Tax unless they limit the amount that workers’ can contribute to their HSAs.

2. Vision, dental and EAPs

The guidance also said the feds were considering excluding self-insured vision and dental plans, which are considered excepted benefits, from the Cadillac Tax by using their “regulatory authority.” They will also look into doing the same for EAPs that fall under the excepted benefit category.

Under current health reform regs, fully insured dental and vision plans are excluded from the excise tax.

3. Specific onsite clinics

Finally, the IRS guidance touched on the type of onsite medical clinics that would likely be excluded from the Cadillac Tax.

The onsite clinics the IRS guidance refers to are the type that only offer de minimis (i.e., minimal) care to workers. The IRS cited a COBRA reg to spell out the type of clinics that will likely be excluded from the tax. According to that reg, an onsite clinic isn’t considered a group health plan if:

  • The care consists primarily of first aid provided during the employer’s work hours for treatment of a health condition, illness or injury that occurs during work hours
  • the care is only available to current employees, and
  • employees aren’t charged for the use of the facility.

If an employer’s onsite clinic meets this criteria, it likely won’t be subject to the ACA’s excise tax, the IRS said.

More to come

The IRS also made it clear that there was more guidance to come on the types of care that will trigger the Cadillac Tax.

The feds are accepting public comments on the details of this notice until May 15, 2015, after which they’ll release additional guidance followed by proposed regs on the Cadillac Tax.

Specifically, the feds are requesting employer comments on onsite clinics that provide the following health services in addition to first aid:

  • immunizations
  • allergy injections
  • provision of nonprescription pain relievers, such as aspirin, and
  • the treatment of injuries caused by accidents at work, beyond first aid.

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