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United States Code (Last Updated: May 24, 2014) |
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Title 26. INTERNAL REVENUE CODE |
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SubTitle D. Miscellaneous Excise Taxes |
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Chapter 43. QUALIFIED PENSION, ETC., PLANS |
§ 4980I. Excise tax on high cost employer-sponsored health coverage
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(a) Imposition of tax If— (1) an employee is covered under any applicable employer-sponsored coverage of an employer at any time during a taxable period, and (2) there is any excess benefit with respect to the coverage, there is hereby imposed a tax equal to 40 percent of the excess benefit. (b) Excess benefit For purposes of this section— (1) In general The term “excess benefit” means, with respect to any applicable employer-sponsored coverage made available by an employer to an employee during any taxable period, the sum of the excess amounts determined under paragraph (2) for months during the taxable period.
(2) Monthly excess amount The excess amount determined under this paragraph for any month is the excess (if any) of— (A) the aggregate cost of the applicable employer-sponsored coverage of the employee for the month, over (B) an amount equal to 1⁄12 of the annual limitation under paragraph (3) for the calendar year in which the month occurs. (3) Annual limitation For purposes of this subsection— (A) In general The annual limitation under this paragraph for any calendar year is the dollar limit determined under subparagraph (C) for the calendar year.
(B) Applicable annual limitation (i) In general Except as provided in clause (ii), the annual limitation which applies for any month shall be determined on the basis of the type of coverage (as determined under subsection (f)(1)) provided to the employee by the employer as of the beginning of the month.
(ii) Multiemployer plan coverage Any coverage provided under a multiemployer plan (as defined in section 414(f)) shall be treated as coverage other than self-only coverage.
(C) Applicable dollar limit (i) 2018 In the case of 2018, the dollar limit under this subparagraph is— (I) in the case of an employee with self-only coverage, $10,200 multiplied by the health cost adjustment percentage (determined by only taking into account self-only coverage), and (II) in the case of an employee with coverage other than self-only coverage, $27,500 multiplied by the health cost adjustment percentage (determined by only taking into account coverage other than self-only coverage). (ii) Health cost adjustment percentage For purposes of clause (i), the health cost adjustment percentage is equal to 100 percent plus the excess (if any) of— (I) the percentage by which the per employee cost for providing coverage under the Blue Cross/Blue Shield standard benefit option under the Federal Employees Health Benefits Plan for plan year 2018 (determined by using the benefit package for such coverage in 2010) exceeds such cost for plan year 2010, over (II) 55 percent. (iii) Age and gender adjustment (I) In general The amount determined under subclause (I) or (II) of clause (i), whichever is applicable, for any taxable period shall be increased by the amount determined under subclause (II).
(II) Amount determined The amount determined under this subclause is an amount equal to the excess (if any) of— (aa) the premium cost of the Blue Cross/Blue Shield standard benefit option under the Federal Employees Health Benefits Plan for the type of coverage provided such individual in such taxable period if priced for the age and gender characteristics of all employees of the individual’s employer, over (bb) that premium cost for the provision of such coverage under such option in such taxable period if priced for the age and gender characteristics of the national workforce. (iv) Exception for certain individuals In the case of an individual who is a qualified retiree or who participates in a plan sponsored by an employer the majority of whose employees covered by the plan are engaged in a high-risk profession or employed to repair or install electrical or telecommunications lines— (I) the dollar amount in clause (i)(I) shall be increased by $1,650, and (II) the dollar amount in clause (i)(II) shall be increased by $3,450, (v) Subsequent years In the case of any calendar year after 2018, each of the dollar amounts under clauses (i) (after the application of clause (ii)) and (iv) shall be increased to the amount equal to such amount as in effect for the calendar year preceding such year, increased by an amount equal to the product of— (I) such amount as so in effect, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for such year (determined by substituting the calendar year that is 2 years before such year for “1992” in subparagraph (B) thereof), increased by 1 percentage point in the case of determinations for calendar years beginning before 2020. If any amount determined under this clause is not a multiple of $50, such amount shall be rounded to the nearest multiple of $50. (c) Liability to pay tax (1) In general Each coverage provider shall pay the tax imposed by subsection (a) on its applicable share of the excess benefit with respect to an employee for any taxable period.
(2) Coverage provider For purposes of this subsection, the term “coverage provider” means each of the following: (A) Health insurance coverage If the applicable employer-sponsored coverage consists of coverage under a group health plan which provides health insurance coverage, the health insurance issuer.
(B) HSA and MSA contributions If the applicable employer-sponsored coverage consists of coverage under an arrangement under which the employer makes contributions described in subsection (b) or (d) of section 106, the employer.
(C) Other coverage In the case of any other applicable employer-sponsored coverage, the person that administers the plan benefits.
(3) Applicable share For purposes of this subsection, a coverage provider’s applicable share of an excess benefit for any taxable period is the amount which bears the same ratio to the amount of such excess benefit as— (A) the cost of the applicable employer-sponsored coverage provided by the provider to the employee during such period, bears to (B) the aggregate cost of all applicable employer-sponsored coverage provided to the employee by all coverage providers during such period. (4) Responsibility to calculate tax and applicable shares (A) In general Each employer shall— (i) calculate for each taxable period the amount of the excess benefit subject to the tax imposed by subsection (a) and the applicable share of such excess benefit for each coverage provider, and (ii) notify, at such time and in such manner as the Secretary may prescribe, the Secretary and each coverage provider of the amount so determined for the provider. (B) Special rule for multiemployer plans In the case of applicable employer-sponsored coverage made available to employees through a multiemployer plan (as defined in section 414(f)), the plan sponsor shall make the calculations, and provide the notice, required under subparagraph (A).
(d) Applicable employer-sponsored coverage; cost For purposes of this section— (1) Applicable employer-sponsored coverage (A) In general The term “applicable employer-sponsored coverage” means, with respect to any employee, coverage under any group health plan made available to the employee by an employer which is excludable from the employee’s gross income under section 106, or would be so excludable if it were employer-provided coverage (within the meaning of such section 106).
(B) Exceptions The term “applicable employer-sponsored coverage” shall not include— (i) any coverage (whether through insurance or otherwise) described in section 9832(c)(1) (other than subparagraph (G) thereof) or for long-term care, or (ii) any coverage under a separate policy, certificate, or contract of insurance which provides benefits substantially all of which are for treatment of the mouth (including any organ or structure within the mouth) or for treatment of the eye, or (iii) any coverage described in section 9832(c)(3) the payment for which is not excludable from gross income and for which a deduction under section 162(l) is not allowable. (C) Coverage includes employee paid portion Coverage shall be treated as applicable employer-sponsored coverage without regard to whether the employer or employee pays for the coverage.
(D) Self-employed individual In the case of an individual who is an employee within the meaning of section 401(c)(1), coverage under any group health plan providing health insurance coverage shall be treated as applicable employer-sponsored coverage if a deduction is allowable under section 162(l) with respect to all or any portion of the cost of the coverage.
(E) Governmental plans included Applicable employer-sponsored coverage shall include coverage under any group health plan established and maintained primarily for its civilian employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any such government.
(2) Determination of cost (A) In general The cost of applicable employer-sponsored coverage shall be determined under rules similar to the rules of section 4980B(f)(4), except that in determining such cost, any portion of the cost of such coverage which is attributable to the tax imposed under this section shall not be taken into account and the amount of such cost shall be calculated separately for self-only coverage and other coverage. In the case of applicable employer-sponsored coverage which provides coverage to retired employees, the plan may elect to treat a retired employee who has not attained the age of 65 and a retired employee who has attained the age of 65 as similarly situated beneficiaries.
(B) Health FSAs In the case of applicable employer-sponsored coverage consisting of coverage under a flexible spending arrangement (as defined in section 106(c)(2)), the cost of the coverage shall be equal to the sum of— (i) the amount of employer contributions under any salary reduction election under the arrangement, plus (ii) the amount determined under subparagraph (A) with respect to any reimbursement under the arrangement in excess of the contributions described in clause (i). (C) Archer MSAs and HSAs In the case of applicable employer-sponsored coverage consisting of coverage under an arrangement under which the employer makes contributions described in subsection (b) or (d) of section 106, the cost of the coverage shall be equal to the amount of employer contributions under the arrangement.
(D) Allocation on a monthly basis If cost is determined on other than a monthly basis, the cost shall be allocated to months in a taxable period on such basis as the Secretary may prescribe.
(3) Employee The term “employee” includes any former employee, surviving spouse, or other primary insured individual.
(e) Penalty for failure to properly calculate excess benefit (1) In general If, for any taxable period, the tax imposed by subsection (a) exceeds the tax determined under such subsection with respect to the total excess benefit calculated by the employer or plan sponsor under subsection (c)(4)— (A) each coverage provider shall pay the tax on its applicable share (determined in the same manner as under subsection (c)(4)) of the excess, but no penalty shall be imposed on the provider with respect to such amount, and (B) the employer or plan sponsor shall, in addition to any tax imposed by subsection (a), pay a penalty in an amount equal to such excess, plus interest at the underpayment rate determined under section 6621 for the period beginning on the due date for the payment of tax imposed by subsection (a) to which the excess relates and ending on the date of payment of the penalty. (2) Limitations on penalty (A) Penalty not to apply where failure not discovered exercising reasonable diligence No penalty shall be imposed by paragraph (1)(B) on any failure to properly calculate the excess benefit during any period for which it is established to the satisfaction of the Secretary that the employer or plan sponsor neither knew, nor exercising reasonable diligence would have known, that such failure existed.
(B) Penalty not to apply to failures corrected within 30 days No penalty shall be imposed by paragraph (1)(B) on any such failure if— (i) such failure was due to reasonable cause and not to willful neglect, and (ii) such failure is corrected during the 30-day period beginning on the 1st date that the employer knew, or exercising reasonable diligence would have known, that such failure existed. (C) Waiver by Secretary In the case of any such failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the penalty imposed by paragraph (1), to the extent that the payment of such penalty would be excessive or otherwise inequitable relative to the failure involved.
(f) Other definitions and special rules For purposes of this section— (1) Coverage determinations (A) In general Except as provided in subparagraph (B), an employee shall be treated as having self-only coverage with respect to any applicable employer-sponsored coverage of an employer.
(B) Minimum essential coverage An employee shall be treated as having coverage other than self-only coverage only if the employee is enrolled in coverage other than self-only coverage in a group health plan which provides minimum essential coverage (as defined in section 5000A(f)) to the employee and at least one other beneficiary, and the benefits provided under such minimum essential coverage do not vary based on whether any individual covered under such coverage is the employee or another beneficiary.
(2) Qualified retiree The term “qualified retiree” means any individual who— (A) is receiving coverage by reason of being a retiree, (B) has attained age 55, and (C) is not entitled to benefits or eligible for enrollment under the Medicare program under title XVIII of the Social Security Act. (3) Employees engaged in high-risk profession The term “employees engaged in a high-risk profession” means law enforcement officers (as such term is defined in section 1204 of the Omnibus Crime Control and Safe Streets Act of 1968), employees in fire protection activities (as such term is defined in section 3(y) of the Fair Labor Standards Act of 1938), individuals who provide out-of-hospital emergency medical care (including emergency medical technicians, paramedics, and first-responders), individuals whose primary work is longshore work (as defined in section 258(b) of the Immigration and Nationality Act (8 U.S.C. 1288(b)), determined without regard to paragraph (2) thereof), and individuals engaged in the construction, mining, agriculture (not including food processing), forestry, and fishing industries. Such term includes an employee who is retired from a high-risk profession described in the preceding sentence, if such employee satisfied the requirements of such sentence for a period of not less than 20 years during the employee’s employment.
(4) Group health plan The term “group health plan” has the meaning given such term by section 5000(b)(1).
(5) Health insurance coverage; health insurance issuer (A) Health insurance coverage The term “health insurance coverage” has the meaning given such term by section 9832(b)(1) (applied without regard to subparagraph (B) thereof, except as provided by the Secretary in regulations).
(B) Health insurance issuer The term “health insurance issuer” has the meaning given such term by section 9832(b)(2).
(6) Person that administers the plan benefits The term “person that administers the plan benefits” shall include the plan sponsor if the plan sponsor administers benefits under the plan.
(7) Plan sponsor The term “plan sponsor” has the meaning given such term in section 3(16)(B) of the Employee Retirement Income Security Act of 1974.
(8) Taxable period The term “taxable period” means the calendar year or such shorter period as the Secretary may prescribe. The Secretary may have different taxable periods for employers of varying sizes.
(9) Aggregation rules All employers treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as a single employer.
(10) Denial of deduction For denial of a deduction for the tax imposed by this section, see section 275(a)(6).
(g) Regulations The Secretary shall prescribe such regulations as may be necessary to carry out this section.
References In Text
The Social Security Act, referred to in subsec. (f)(2)(C), is act Aug. 14, 1935, ch. 531, 49 Stat. 620. Title XVIII of the Act is classified generally to subchapter XVIII (§ 1395 et seq.) of chapter 7 of Title 42, The Public Health and Welfare. For complete classification of this Act to the Code, see section 1305 of Title 42 and Tables.
Section 1204 of the Omnibus Crime Control and Safe Streets Act of 1968, referred to in subsec. (f)(3), is classified to section 3796b of Title 42, The Public Health and Welfare.
Section 3(y) of the Fair Labor Standards Act of 1938, referred to in subsec. (f)(3), is classified to section 203(y) of Title 29, Labor.
Section 3(16)(B) of the Employee Retirement Income Security Act of 1974, referred to in subsec. (f)(7), is classified to section 1002(16)(B) of Title 29, Labor.
Amendments
2010—Subsec. (b)(3)(B). Pub. L. 111–152, § 1401(a)(1), designated existing provisions as cl. (i), inserted heading, substituted “Except as provided in clause (ii), the annual” for “The annual”, and added cl. (ii).
Subsec. (b)(3)(C). Pub. L. 111–152, § 1401(a)(2)(A), struck out introductory provisions which read: “Except as provided in subparagraph (D)—”.
Subsec. (b)(3)(C)(i). Pub. L. 111–152, § 1401(a)(2)(B)(i), substituted “2018” for “2013” in heading and introductory provisions.
Subsec. (b)(3)(C)(i)(I). Pub. L. 111–152, § 1401(a)(2)(B)(ii), substituted “$10,200 multiplied by the health cost adjustment percentage (determined by only taking into account self-only coverage)” for “$8,500”.
Subsec. (b)(3)(C)(i)(II). Pub. L. 111–152, § 1401(a)(2)(B)(iii), substituted “$27,500 multiplied by the health cost adjustment percentage (determined by only taking into account coverage other than self-only coverage)” for “$23,000”.
Subsec. (b)(3)(C)(ii), (iii). Pub. L. 111–152, § 1401(a)(2)(C), added cls. (ii) and (iii). Former cls. (ii) and (iii) redesignated (iv) and (v), respectively.
Subsec. (b)(3)(C)(iv). Pub. L. 111–152, § 1401(a)(2)(D), inserted “covered by the plan” after “whose employees” in introductory provisions, added subcls. (I) and (II), and struck out former subcls. (I) and (II) which read as follows:
“(I) the dollar amount in clause (i)(I) (determined after the application of subparagraph (D)) shall be increased by $1,350, and
“(II) the dollar amount in clause (i)(II) (determined after the application of subparagraph (D)) shall be increased by $3,000.”
Pub. L. 111–152, § 1401(a)(2)(C), redesignated cl. (ii) as (iv).
Subsec. (b)(3)(C)(v). Pub. L. 111–152, § 1401(a)(2)(E)(i), (ii), substituted “2018” for “2013” and “clauses (i) (after the application of clause (ii)) and (iv)” for “clauses (i) and (ii)” in introductory provisions.
Pub. L. 111–152, § 1401(a)(2)(C), redesignated cl. (iii) as (v).
Subsec. (b)(3)(C)(v)(II). Pub. L. 111–152, § 1401(a)(2)(E)(iii), inserted “in the case of determinations for calendar years beginning before 2020” after “1 percentage point”.
Subsec. (b)(3)(D). Pub. L. 111–152, § 1401(a)(3), struck out subpar. (D) which provided transition rule for States with highest coverage costs.
Subsec. (d)(1)(B)(i). Pub. L. 111–148, § 10901(b), substituted “section 9832(c)(1) (other than subparagraph (G) thereof)” for “section 9832(c)(1)(A)”.
Subsec. (d)(1)(B)(ii), (iii). Pub. L. 111–152, § 1401(a)(4), added cl. (ii) and redesignated former cl. (ii) as (iii).
Subsec. (d)(3). Pub. L. 111–152, § 1401(a)(5), added par. (3).
Subsec. (f)(3). Pub. L. 111–148, § 10901(a), inserted “individuals whose primary work is longshore work (as defined in section 258(b) of the Immigration and Nationality Act (8 U.S.C. 1288(b)), determined without regard to paragraph (2) thereof),” before “and individuals engaged in the construction, mining”.
Effective Date Of Amendment
Pub. L. 111–148, title X, § 10901(c),
Effective Date
Pub. L. 111–148, title IX, § 9001(c),