n-15-52.pdf

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Section 4980I — Excise Tax on High Cost Employer-Sponsored Health Coverage
Notice 2015-52
I. PURPOSE AND OVERVIEW
This notice is intended to continue the process of developing regulatory guidance
regarding the excise tax on high cost employer-sponsored health coverage under
§ 4980I of the Internal Revenue Code (Code). Section 4980I, which was added to the
Code by the Affordable Care Act,
1
applies to taxable years beginning after December
31, 2017. Under this provision, if the aggregate cost of applicable employer-sponsored
coverage (applicable coverage) provided to an employee exceeds a statutory dollar limit
(dollar limit), which is adjusted annually, the excess benefit is subject to a 40 percent
excise tax.
On February 23, 2015, the Department of the Treasury (Treasury) and the
Internal Revenue Service (IRS) issued Notice 2015-16, 2015-10 IRB 732, which
describes potential approaches regarding a number of issues under § 4980I that may
be incorporated into future regulations. 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. Treasury and IRS
invited comments on the issues addressed in that notice and on any other issues under
§ 4980I.
This notice is intended to supplement Notice 2015-16 by addressing additional
issues under § 4980I, including the identification of the taxpayers who may be liable for
the excise tax, employer aggregation, the allocation of the tax among the applicable
taxpayers, and the payment of the applicable tax. This notice also addresses further
issues regarding the cost of applicable coverage that were not addressed in Notice
2015-16. Treasury and IRS invite comments on these issues and any other issues
under § 4980I. After considering the comments on both notices, Treasury and IRS
intend to issue proposed regulations under § 4980I. The proposed regulations will
provide further opportunity for comment, including an opportunity to comment on the
issues addressed in the preceding notices.

1
The “Affordable Care Act” refers to the Patient Protection and Affordable Care Act (enacted March 23,
2010, Pub. L. No. 111-148), as amended by the Health Care and Education Reconciliation Act of 2010
(enacted March 30, 2010, Pub. L. No. 111-152), and as further amended by the Department of Defense
and Full-Year Continuing Appropriations Act, 2011 (enacted April 15, 2011, Pub. L. No. 112-10).

2

This notice includes the following sections:
Section I: PURPOSE AND OVERVIEW
Section II: BACKGROUND
Section III: PERSONS LIABLE FOR THE § 4980I EXCISE TAX
Section IV: EMPLOYER AGGREGATION
Section V: COST OF APPLICABLE COVERAGE
Section VI: AGE AND GENDER ADJUSTMENT TO THE DOLLAR LIMIT
Section VII: NOTICE AND PAYMENT
Section VIII: REQUEST FOR COMMENTS
Section IX: RELIANCE
Section X: DRAFTING INFORMATION
II. BACKGROUND
Section 4980I(a) imposes a 40 percent excise tax on any “excess benefit”
provided to an employee, and § 4980I(b) provides that an excess benefit is the excess,
if any, of the aggregate cost of applicable coverage of the employee for the month over
the applicable dollar limit for the employee for the month.
2

Section 4980I(c)(1) provides that each coverage provider must pay the excise tax
on its applicable share of the excess benefit with respect to an employee for any taxable
period.
Section 4980I(c)(2) defines the “coverage provider” as (A) the health insurance
issuer, in the case of applicable coverage under a group health plan that provides
health insurance coverage, (B) the employer, in the case of applicable coverage under
an arrangement in which the employer makes contributions described in § 106(b) or (d)
(health savings accounts (HSAs) and Archer medical savings accounts (Archer MSAs)),
and (C) the person that administers the plan benefits, in the case of any other
applicable coverage. Section 4980I(f)(6) provides that the term “person that administers
the plan benefits” includes the plan sponsor if the plan sponsor administers benefits
under the plan. Section 4980I(f)(7) provides that the term “plan sponsor” has the
meaning given such term in § 3(16)(B) of the Employee Retirement Income Security Act
of 1974 (ERISA).

2
See sections III and IV of Notice 2015-16 for background on the provisions of § 4980I related to the
definition of applicable coverage and the calculation of the excess benefit (including the calculation of the
aggregate cost of the applicable coverage and determination of the applicable dollar limit).

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Section 4980I(c)(3) defines a coverage provider’s applicable share of an excess
benefit for any taxable period as the amount which bears the same ratio to the amount
of such excess benefit as (A) the cost of applicable coverage provided by the provider
to the employee during that period, bears to (B) the aggregate cost of all applicable
coverage provided to the employee by all coverage providers during that period.
Section 4980I(c)(4)(A) provides that each employer must calculate for each
taxable period the amount of the excess benefit subject to the excise tax and the
applicable share of such excess benefit for each coverage provider. Section
4980I(c)(4)(A) further provides that each employer must 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.
Section 4980I(c)(4)(B) provides a special rule for multiemployer plans under
which the plan sponsor of the multiemployer plan (as defined in § 414(f)) is responsible
for making the calculations and for providing the notice.
Section 4980I(f)(8) provides that the term “taxable period” means the calendar
year or such shorter period as the Secretary may prescribe. Section 4980I(f)(8) further
provides that the Secretary may prescribe different taxable periods for employers of
varying sizes.
Section 4980I(f)(9) provides that all employers treated as a single employer
under subsection (b), (c), (m), or (o) of § 414 are treated as a single employer.
Section 4980I(f)(10) provides a cross-reference to § 275(a)(6) for the denial of a
deduction for the tax imposed by § 4980I. Section 275(a)(6) provides that no deduction
is allowed for the taxes imposed by chapters 41, 42, 43, 44, 45, 46 and 54 of the Code.
Section 4980I is located in chapter 43 of the Code, and therefore no deduction is
allowed for the payment of tax under § 4980I.
III. PERSONS LIABLE FOR THE § 4980I EXCISE TAX
A. Coverage Provider
Section 4980I(c)(1) provides that the coverage provider is liable for any
applicable excise tax. The identity of the coverage provider depends on the type of
coverage provided. Under the statute, in the case of applicable coverage provided
under an insured group health plan, the coverage provider is the health insurance
issuer. With respect to coverage under an HSA or an Archer MSA, the coverage
provider is the employer. For all other applicable coverage, the coverage provider is
“the person that administers the plan benefits.”
B. Person That Administers the Plan Benefits
Section 4980I does not define the term “person that administers the plan
benefits.” Section 4980I(f)(6) provides that the term “person that administers the plan
benefits” includes the plan sponsor if the plan sponsor administers benefits under the

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plan, which indicates that the plan sponsor of a self-insured arrangement may be, but is
not always, the person that administers benefits under the plan. The term, “person that
administers the plan benefits,” is not used elsewhere in the Code, nor is it used
elsewhere in the Affordable Care Act or in ERISA or the Public Health Service Act, both
of which were amended by the Affordable Care Act. Because the term “person that
administers the plan benefits” is not used in other statutory contexts, Treasury and IRS
are considering two alternative approaches to determining the identity of the person that
administers the plan benefits.
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Under either approach, it is anticipated that the person
that administers the plan benefits will generally be an entity, rather than an individual,
but for purposes of the discussion below, the relevant entity or individual is referred to
as a “person.”
Under one approach, the person that administers the plan benefits would be the
person responsible for performing the day-to-day functions that constitute the
administration of plan benefits, such as receiving and processing claims for benefits,
responding to inquiries, or providing a technology platform for benefits information.
Treasury and IRS anticipate that this person generally would be a third-party
administrator for benefits that are self-insured, except in the rare circumstance in which
the employer or plan sponsor performs these functions, or owns the person that
performs these functions. Comments are requested on the types of administrative
functions that should be considered under this approach when determining the person
that administers the plan benefits. Comments are also requested on whether the
person that administers the plan benefits could be easily identified in most instances
under this approach, or whether the identity of the person that administers the plan
benefits would often be unclear because, for example, multiple parties (such as a
pharmacy benefit administrator and a medical claims benefit administrator) perform the
relevant functions with respect to a benefit package for which a single cost of applicable
coverage will be determined as discussed in section IV.C of Notice 2015-16 (concerning
potential approaches for determining the cost of applicable coverage). In addition,
Treasury and IRS request comments on any other concerns this approach would raise.
Under the second approach that Treasury and IRS are considering, the person
that administers the plan benefits would be the person that has the ultimate authority or
responsibility under the plan or arrangement with respect to the administration of the
plan benefits (including final decisions on administrative matters), regardless of whether
that person routinely exercises that authority or responsibility. For purposes of this
second approach, the relevant types of administrative matters over which the person

3
The Department of Health and Human Services (HHS) recently issued regulations defining a category of
self-administered, self-insured plans for purposes of applicability of the fee, imposed by § 1341 of the
Affordable Care Act, which funds the Transitional Reinsurance Program. The definition in these HHS
regulations focuses on the party directly responsible for claims administration and plan enrollment. See
Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2015;
Final Rule, 79 Fed. Reg. 13744, 13772-75 (March 11, 2014). Section 4980I of the Code and § 1341 of
the Affordable Care Act are provisions with no common statutory language. Accordingly, it is not
anticipated that the definition of the person that administers the plan benefits for § 4980I purposes will
align with the definition for self-insured self-administered plans in the HHS regulations.

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that administers plan benefits would have ultimate authority or responsibility could
include eligibility determinations, claims administration, and arrangements with service
providers (including the authority to terminate service provider contracts). Treasury and
IRS anticipate that the person with such ultimate administrative authority or
responsibility under the plan or arrangement would be identifiable based on the terms of
the plan documents and often would not be the person that performs the day-to-day
routine administrative functions under the plan. Comments are requested on whether
the person that administers the plan benefits would be easy to identify under this
second approach in most circumstances or whether multiple parties have ultimate
authority or responsibility for the different relevant administrative matters with respect to
the same benefit package, and whether in most instances this approach would identify
an appropriate person as the person that administers the plan benefits. Comments are
requested on any other issues this approach would raise.
Comments are invited on the application of these approaches to collectively
bargained multiemployer health plans.
IV. EMPLOYER AGGREGATION
Section 4980I(f)(9) provides generally that, for purposes of § 4980I, all employers
treated as a single employer under subsections (b), (c), (m), or (o) of § 414 are treated
as a single employer. Treasury and IRS invite comments on the practical challenges
presented by the application of those aggregation rules to § 4980I. In particular,
Treasury and IRS request comments on the application of these employer aggregation
rules to the: (1) identification of the applicable coverage taken into account as made
available by an employer (§ 4980I(d)(1)(A)); (2) identification of the employees taken
into account for the age and gender adjustment (§ 4980I(b)(3)(C)(iii)), and the
adjustment for employees in high risk professions or who repair and install electrical or
telecommunications lines (§ 4980I(b)(3)(C)(iv)); (3) identification of the taxpayer
responsible for calculating and reporting the excess benefit (§ 4980I(c)(4)(A)); and
(4) identification of the employer liable for any penalty for failure to properly calculate
the tax imposed under § 4980I (§ 4980I(e)(1)(B)).
V. COST OF APPLICABLE COVERAGE
A. Taxable Period
Taxable period is defined under § 4980I(f)(8) to mean the calendar year or such
shorter period as the Secretary may prescribe. The section provides that the Secretary
may have different taxable periods for employers of varying sizes. Treasury and IRS
anticipate that the taxable period will be the calendar year for all taxpayers.
B. Determination Period
To calculate the amount of any excise tax that a coverage provider may owe
under § 4980I for a taxable period, an employer must determine the extent, if any, to
which the cost of applicable coverage provided to an employee during any month of the
taxable period exceeds the dollar limit. The employer then must notify both IRS and the

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coverage provider of the amount of the excess benefit, and the tax must be paid by the
coverage provider. Accordingly, Treasury and IRS anticipate that employers will be
required to determine the cost of applicable coverage provided during a taxable year
sufficiently soon after the end of that taxable year to enable coverage providers to pay
any applicable tax in a reasonably timely manner.

Section 4980I(d)(2)(A) provides that the cost of applicable coverage is to be
determined using rules “similar to the rules of section 4980B(f)(4)” regarding the
determination of the COBRA applicable premium. Section IV.C of Notice 2015-16
invited comments on potential approaches to determining the cost of applicable
coverage. Treasury and IRS now invite further comments on any issues raised by the
anticipated need to determine the cost of applicable coverage for a taxable period
reasonably soon after the end of that taxable period.

Treasury and IRS anticipate that the potential timing issues are likely to be
different for insured plans and self-insured plans, and will also be different for HSAs,
Archer MSAs, health flexible spending arrangements (FSAs),
4
and health
reimbursement arrangements (HRAs). In the case of self-insured plans, for example, if
the cost of applicable coverage is determined based on a period ending at or before the
beginning of the applicable calendar year, then the necessary information should be
available to the employer relatively soon after the applicable calendar year ends to
permit it to calculate any excess benefit for each employee and allocate any excess
benefit among coverage providers. In contrast, if the cost of applicable coverage is
determined based on a period ending during or at the end of the applicable calendar
year, the cost may be determinable only after the end of both the applicable calendar
year and a subsequent run-out period during which employees may submit claims for
reimbursement. In that case, an employer will need additional time to compute the cost
of applicable coverage before it can calculate any excess benefit for each employee
and allocate any excess benefit among coverage providers.

In addition, experience-rated arrangements may provide for payments to be
made to or from an insurance company after the end of a coverage period that relate to
the coverage provided during that coverage period. In other instances, the equivalent of
those types of payments may be made through a premium discount for the next
coverage period. Comments are requested on how those payments or discounts may
be reflected in the cost of applicable coverage, including comments on any
administrative issues that might arise if, for purposes of determining the cost of
applicable coverage, the payments or discounts are attributed back to the original
period of coverage (for which the taxable year might have ended) rather than accounted
for during the period of coverage in which the amounts are paid or the discount applied.
In addition, comments are requested on how employers are addressing these payments
or discounts currently for purposes of determining COBRA applicable premiums.
Taking into account the potential approaches to the determination of the cost of

4
All references in this notice to flexible spending arrangements refer only to health flexible spending
arrangements.

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applicable coverage outlined in Notice 2015-16, as well as other issues with timing
implications, Treasury and IRS request comments on the processes expected to be
involved in calculating and allocating any excess benefit and the time period necessary
to complete these processes.
C. Exclusion from Cost of Applicable Coverage of Amounts
Attributable to the Excise Tax
As discussed in section III of this notice, the excise tax will be paid by the health
insurance issuer for insured coverage and by the “person that administers the plan
benefits” (which may, in some instances, be the employer) in the case of self-insured
coverage. It is expected that, if a person other than the employer is the coverage
provider liable for the excise tax, that person may pass through all or part of the amount
of the excise tax to the employer in some instances. If the coverage provider does pass
through the excise tax and receives reimbursement for the tax (the excise tax
reimbursement), the excise tax reimbursement will be additional taxable income to the
coverage provider. Because § 4980I(f)(10) provides that the excise tax is not
deductible, the coverage provider will experience an increase in taxable income (that is
not offset by a deduction) by reason of the receipt of the excise tax reimbursement. As
a result, it is anticipated that the amount the coverage provider passes through to the
employer may include not only the excise tax reimbursement, but also an amount to
account for the additional income tax the coverage provider will incur (the income tax
reimbursement).
In determining the cost of applicable coverage subject to the excise tax,
§ 4980I(d)(2)(A) provides that “any portion of the cost of such coverage which is
attributable to the tax imposed under this section shall not be taken into account.” This
indicates that the excise tax reimbursement should be excluded from the cost of
applicable coverage, and it is anticipated that future regulations will reflect this
interpretation.
Treasury and IRS are also considering whether some or all of the income tax
reimbursement could be excluded from the cost of applicable coverage. However,
Treasury and IRS are concerned that a methodology for excluding an income tax
reimbursement may not be administrable, given the potential variability of tax rates and
other factors among different coverage providers and potential difficulties in determining
and excluding the reimbursement amount. Nonetheless, comments are requested on
administrable methods for exclusion of the income tax reimbursement.
Because it may not be feasible to exclude amounts that are not separately billed,
Treasury and IRS anticipate that coverage providers would be permitted to exclude the
amount of any excise tax reimbursement or income tax reimbursement only if it is
separately billed and identified as attributable to the cost of the excise tax. Separately
billed amounts in excess of the excise tax reimbursement or the income tax
reimbursement (as determined in the manner discussed in section V.D below) could not
be excluded from the cost of applicable coverage (and, therefore, would be treated as
part of the cost of applicable coverage). Comments are requested on any practical

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issues or legal barriers to passing through any or all of these amounts or to separately
identifying these amounts, such as federal rating rules or state insurance law.
Coverage providers generally will not know the amount of any excise tax due
with respect to applicable coverage provided for a taxable period (discussed in section
V.A above) until after the end of the taxable period. As a result, Treasury and IRS
expect that, as a practical matter, the coverage provider generally will be unable to bill
for the excise tax reimbursement or the income tax reimbursement until the excise tax is
paid by the coverage provider. However, comments are requested on whether there
are alternative approaches that might allow for earlier billing of the amount but that
would not give rise to undue administrative complexity or difficulty.
D. Income Tax Reimbursement Formula
If Treasury and IRS conclude that an income tax reimbursement can be excluded
from the cost of coverage, it is anticipated that the amount of the income tax
reimbursement would be determined using a formula commonly used to calculate “tax
gross-ups.” As mentioned previously, a coverage provider that passes the excise tax
through to another party will have additional taxable income as a result of receipt of the
excise tax reimbursement. If a coverage provider then also passes through the amount
of the income tax due on the excise tax reimbursement, the reimbursement of that
additional amount will further increase the taxable income of the coverage provider, and
the coverage provider will owe additional income tax due to that reimbursement as well.
The formula would take these additional taxes into account in determining the amount of
the income tax reimbursement. Under the formula, the amount of the income tax
reimbursement that would be excludable from the cost of applicable coverage would be:
[amount of tax]
Income Tax Reimbursement =

- [amount of tax]
(1 – [marginal tax rate])

In this formula, the “amount of tax” is the excise tax rate multiplied by the initial
excess benefit calculated without regard to any portion of the cost of applicable
coverage that the coverage provider identifies as arising from an excise tax
reimbursement or an income tax reimbursement. For example, if the cost of applicable
coverage without regard to the tax is $2,500 in excess of the dollar limit, a coverage
provider would owe $1,000 as a § 4980I excise tax ($2,500 times the 40 percent rate).
If the coverage provider’s marginal tax rate is 20 percent,
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the formula would divide
$1,000 (the amount of the excise tax) by .8 (1-0.2), which equals $1,250; and then
subtract $1,000 (the amount of the excise tax), which equals $250 ($1,250 - $1,000).

5
If the coverage provider were not subject to income tax on the excise tax reimbursement (for example,
because it is a tax-exempt organization described in § 501(c) that is not subject to unrelated business
income tax on the reimbursement under § 511), its marginal tax rate on the reimbursement would be
zero, producing an income tax reimbursement amount of zero under the formula.

9

Accordingly, the income tax reimbursement on an excise tax of $1,000 paid by a
coverage provider with a marginal tax rate of 20 percent would be $250.
If it is determined that an income tax reimbursement can be excluded from the
cost of applicable coverage, Treasury and IRS are considering two possible approaches
for applying the formula described above. The first approach would use the coverage
provider’s actual marginal tax rate in the formula. This approach could provide greater
flexibility to taxpayers, but also could create administrative difficulties for IRS, coverage
providers, and employers due to the extended time needed to determine a taxpayer’s
marginal tax rate for any year, changes in a coverage provider’s marginal tax rate from
year to year (including potential retroactive changes due to amended returns, audits, or
other circumstances), and the fact that a coverage provider’s marginal tax rate is
generally determined for its fiscal year, which may not be the same as the calendar year
taxable period for which the cost of applicable coverage is determined. This approach
could also create an additional administrative burden in cases in which multiple
coverage providers are liable for tax for coverage offered by a given employer.
Comments are requested on whether there are workable solutions to these
administrative challenges that would permit Treasury and IRS to implement such an
approach.
The second approach would prescribe, for purposes of applying the income tax
reimbursement formula in a manner that is administrable, a standard marginal tax rate
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based on typical marginal tax rates applicable to different types of health insurance
issuers. It is anticipated that the prescribed rates would reflect an approximately
representative marginal rate that would be less than the statutory maximum rate. The
prescribed rate for an insurer would be used in the income tax reimbursement formula
rather than the coverage provider’s actual marginal tax rate. While more administrable,
this approach may not permit some taxpayers to exclude from the cost of applicable
coverage the total income tax reimbursement, but would permit other taxpayers to
exclude from the cost of applicable coverage more than the total income tax
reimbursement. Comments are requested on how these standard marginal tax rates
might be determined, how many such rates might apply (for example, one for each of
two or three categories of insurers) and for what types of insurers, and how this
approach would affect particular segments of taxpayers.
E. Allocation of Contributions to HSAs, Archer MSAs, FSAs, HRAs
Applicable coverage under § 4980I(d)(1)(A) is “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).” Applicable
coverage includes coverage under certain HSAs, Archer MSAs, FSAs, or HRAs.

6
If an approach using a standard marginal tax rate were adopted, the standard marginal tax rate would
not be available to coverage providers that are not subject to income tax on the excise tax
reimbursement.

10

Section 4980I(a) imposes an excise tax equal to 40 percent of the excess benefit
if an employee is covered under any applicable coverage of an employer at any time
during a taxable period and there is any excess benefit with respect to the coverage.
Under § 4980I(b)(1), an excess benefit means, with respect to any applicable coverage
made available by an employer to an employee during any taxable period, the sum of
the excess amounts determined for months during the taxable period. Under
§ 4980I(b)(2), the excess amount determined for any month is the excess (if any) of
(A) the aggregate cost of the applicable coverage of the employee for the month over
(B) an amount equal to 1/12 of the dollar limit for the calendar year in which the month
occurs.
Section 4980I(d)(2)(D) provides that if the cost of applicable coverage is
determined on other than a monthly basis, the cost is allocated to months in a taxable
period on such basis as the Secretary may prescribe.
Treasury and IRS are considering an approach under which contributions to
account-based plans would be allocated on a pro-rata basis over the period to which the
contribution relates (generally, the plan year), regardless of the timing of the
contributions during the period. Treasury and IRS anticipate that this allocation rule
would apply to HSAs, Archer MSAs, FSAs, and HRAs that are applicable coverage. For
example, if an employer contributes an amount to an HSA for an employee for a plan
year, that contribution would be allocated ratably to each calendar month of the plan
year, regardless of when the employer actually contributes the amount to the HSA.
Similarly, if an employee elects to contribute to an FSA for a plan year, the employee’s
total contributions would be allocated ratably to each calendar month of the plan year,
even though the entire amount contributed for the plan year would be available to
reimburse qualified medical expenses on the first day of the plan year. Comments are
requested on this approach as well as alternative approaches.
F. Cost of Applicable Coverage under FSAs with Employer Flex
Credits
Section 4980I(d)(2)(B) provides that in the case of applicable coverage
consisting of coverage under an FSA, the cost of applicable coverage is equal to the
sum of (i) the amount of any contributions made under a salary reduction election, plus
(ii) the cost of applicable coverage under the generally applicable rules for determining
the cost of applicable coverage with respect to any reimbursement under the
arrangement in excess of the contributions made under the salary reduction agreement.
Thus, the cost of applicable coverage of an FSA for any plan year would be the greater
of the amount of an employee’s salary reduction or the total reimbursements under the
FSA.
Under this general rule, in determining the portion of the cost of applicable
coverage attributable to non-elective flex credits contributed to an FSA by an employer
(either in combination with employee salary reduction contributions or without), the cost
of the non-elective flex credit would be the amount that is actually reimbursed in excess
of the employee’s salary reduction election for that plan year. For example, if an

11

employee elects to make a salary reduction contribution to an FSA in the amount of
$1,000 for a plan year and the employer makes a non-elective flex credit in the amount
of $500 available to the employee under the FSA for that plan year, but the employee
only has $1,200 in medical expenses reimbursed under the FSA for that plan year, the
cost of applicable coverage for the FSA for the plan year would be $1,200 (comprised of
the $1,000 salary reduction plus the additional $200 in reimbursements attributable to
the non-elective flex credit provided by the employer) rather than the full $1,500 elected
or available for the FSA for the plan year.
Under this rule, the cost of applicable coverage of the FSA would not be known
until some point in time after the end of the taxable year. With respect to amounts
carried over to a subsequent year, this rule would take such amounts into account in a
later year if the reimbursements in the subsequent year exceeded the amount of
employee salary reduction in the subsequent year.
To avoid the double counting associated with taking salary deferral amounts that
are carried over from one year to another year into account in determining the cost of
coverage in both the year of contribution and the subsequent year, which would be the
result under the general rule outlined above, Treasury and IRS are considering
providing a safe harbor. Under this safe harbor, the cost of applicable coverage for the
plan year would be the amount of an employee’s salary reduction without regard to
carry-over amounts. Unused amounts that are carried forward would be taken into
account when initially funded by salary reduction but would be disregarded when used
to reimburse expenses in a later year. For example, if an employee elected to reduce
his salary by $1,200 to contribute to an FSA in a given year, the FSA’s cost of
applicable coverage in that year would be $1,200 even if some or all of the $1,200 was
not used to reimburse expenses in that year. Accordingly, if that same employee
carried over $500 of unused funds that were used to reimburse expenses in the second
year, and elected no new salary reduction for the second year, the FSA’s cost of
applicable coverage in the second year would be $0.
The possible safe harbor described above would be limited to cases in which
non-elective flex credits are not available for use in the FSA. To address situations in
which non-elective flex credits are available under a cafeteria plan that includes an FSA,
Treasury and IRS are considering a variation on the safe harbor that would allow an
FSA with non-elective flex credits to be valued under the safe harbor described in the
preceding paragraph in certain situations.
Under some cafeteria plan arrangements, an employee may elect to defer
amounts to the cafeteria plan that exceed the § 125(i) limit for FSAs (for 2015, $2,550),
and the employer may offer additional non-elective flex credits. These amounts may be
allocated to pay for various benefits available under the cafeteria plan, such as
reimbursements under an FSA, dependent care assistance, and health insurance. The
possible variation on the safe harbor would provide that an FSA could be treated as
funded solely by salary reduction if the amount elected by the employee for the FSA
were less than or equal to the maximum amount permitted by § 125(i). For example, if
an employee with a $1,000 non-elective flex credit available reduces salary by an

12

additional $5,000 under a cafeteria plan and allocates $2,550 to the FSA, the FSA
would be treated as funded solely by salary reduction. As a result, the cost of
applicable coverage would be $2,550. Under the safe harbor proposal, the salary
reduction taken into account would be counted only in the year an amount was elected
for the FSA and, therefore, would be disregarded in later years if amounts were carried
over. Comments are requested on the allocation of FSA amounts between non-elective
flex credits and salary reduction when the total election for the FSA exceeds the
maximum salary reduction amount permitted by § 125(i).
Treasury and IRS request comments concerning whether these potential
approaches are administrable. In addition, comments are requested generally on the
potential safe harbors described above and on any other issues arising from the
valuation of FSAs.
G. Inclusion in Applicable Coverage of Self-Insured Coverage
Includible in Income under § 105(h)
Section 4980I(d)(1)(A) defines applicable coverage to include coverage under
any group health plan made available to the employee by an employer that is
excludable from the employee’s gross income under § 106 (or would be so excludable if
it were employer-sponsored coverage).
Section 106 excludes employer-provided coverage under an accident or health
plan from an employee’s gross income. For an employee who then receives
reimbursement for medical expenses of the employee or his family under an employer-
provided accident or health plan, § 105 further excludes those reimbursement amounts
from the employee’s income. In the case of reimbursements paid to a highly-
compensated individual under a self-insured plan that discriminates in favor of highly
compensated individuals, however, § 105(h) provides that the exclusion does not apply
to the extent that the amounts constitute an “excess reimbursement.” The amount of
the excess reimbursement is included in the gross income of the highly compensated
individuals.
Section 6051(a)(14) requires employers to report on the Form W-2, Wage and
Tax Statement (Form W-2), the aggregate cost of applicable coverage as defined in
§ 4980I(d)(1). Notice 2012-9, 2012-4 IRB 315, currently permits employers to reduce
the amount reported on the Form W-2 by any excess reimbursement included in gross
income by application of § 105(h).
Although excess reimbursements currently can be excluded from the cost
reported on the Form W-2, Treasury and IRS do not believe such amounts reduce the
cost of applicable coverage subject to tax under § 4980I. It is the coverage (excludable
from income under § 106), and not the resulting benefit (excludable from income under
§ 105), that is applicable coverage under § 4980I, and it is the cost of that coverage that
is compared to the dollar limit to determine the amount of any excise tax under § 4980I.
Inclusion of excess reimbursements in an employee’s income does not reduce the cost
of applicable coverage subject to tax under § 4980I. Treasury and IRS anticipate that

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Notice 2012-9 will be modified in the future to make excess reimbursements subject to
reporting under § 6051(a)(14) and that the forms and instructions will be modified to
reflect this change. Taxpayers should continue to follow Notice 2012-9 until
modification of that notice is issued.
VI. AGE AND GENDER ADJUSTMENT TO THE DOLLAR LIMIT
Section 4980I(b)(3) provides two baseline per-employee dollar limits for 2018
($10,200 for self-only coverage and $27,500 for other than self-only coverage) but also
provides that various adjustments, discussed in section V.C of Notice 2015-16, will
apply to increase these amounts. As stated in Notice 2015-16, Treasury and IRS intend
to include rules regarding these adjustments in proposed regulations and have invited
comments on the application and adjustment of the dollar limits.
One of these adjustments, set forth at § 4980I(b)(3)(C)(iii), provides for an
increase in the dollar limits based on the age and gender characteristics of all
employees of an employer. In accordance with the statute, no downward adjustments
can occur (that is, the statute does not provide for any decrease in the dollar limits
based on age and gender). Specifically, the adjustment increases the dollar limit by an
amount equal to the excess of the premium cost of the Blue Cross/Blue Shield standard
benefit option under the Federal Employees Health Benefits Plan (FEHBP standard
option) if priced for the age and gender characteristics of all employees of an
individual’s employer (the employer’s premium cost), over the premium cost for
providing this coverage if priced for the age and gender characteristics of the national
workforce (the national premium cost). Section 4980I(b)(3)(C)(iii)(II)(aa) provides that
the adjustment is based on “the type of coverage provided such individual in such
taxable period.” In other words, the age and gender adjustment is determined
separately for self-only coverage and other than self-only coverage.
While rating based on age and gender in the individual and small group market is
subject to certain restrictions under the Affordable Care Act, the actual cost of
applicable coverage generally differs based on age and gender. On average, older
individuals have higher health costs than younger individuals, and, on average, younger
women have higher health costs than younger men. Consequently, some employers
may have higher health costs than other employers under identical benefit plans due to
the age and gender characteristics of their workforce. In determining the effect that the
age and gender characteristics of a workforce have on premium rates, it is not sufficient
to simply compare the average age and gender of an employer’s workforce to the
average age and gender of the national workforce. Rather, the premium rate depends
on the distribution of men and women in different age groups.
A. Determination of Age and Gender Distribution
To compare the employer’s premium cost with the national premium cost, it will
be necessary to establish the age and gender characteristics of the national workforce.
To determine the age and gender distribution of the national workforce, Treasury and
IRS are considering using the Current Population Survey as summarized in Table A-8a,

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Employed Persons and Employment-Population Ratios by Age and Sex, Seasonally
Adjusted (Table A-8a), published annually by the Department of Labor Bureau of Labor
Statistics. This publication provides the number of individuals participating in the labor
force by five-year age-bands (up to age 75 and over) and the ratio of male to female
workers in each age-band. Treasury and IRS request comments on whether Table A-
8a and the Current Population Survey more generally is an appropriate source of data
for the age and gender characteristics of the national workforce for purposes of § 4980I
and whether other sources of data for the age and gender characteristics of the national
workforce should be considered.
To determine the age and gender characteristics of a particular employer’s
population, Treasury and IRS are considering a requirement that an employer use the
first day of the plan year as a snapshot date for determining the composition of its
employee population. In other words, an employer would be required to determine the
age and gender of each employee as of the first day of the plan year and that
distribution of age and gender characteristics would apply for purposes of the age and
gender adjustment. Comments are requested on the administrability of this approach,
whether it is likely to result in a representative age and gender distribution, and whether
employers should be permitted to choose a different date other than the first day of the
plan year to determine the age and gender characteristics of its employees. If
employers were permitted to choose a different date, it is anticipated that the employer
would not be permitted to vary the date from one taxable year to the next. To the extent
that commenters recommend that employers be permitted to use a date other than the
first day of the plan year, Treasury and IRS ask that the commenters address why
permitting the use of a different date will result in a more accurate representation of the
age and gender characteristics of an employer’s workforce, whether flexibility in
determining the snapshot date is susceptible to abuse, and any administrability issues
associated with requiring a specific date or permitting flexibility in the choice of date.
B. Development of Age and Gender Adjustment Tables
Treasury and IRS anticipate that IRS will formulate and publish adjustment tables
to facilitate and simplify the calculation of the age and gender adjustment. The following
approach is being considered for the development of these tables and the calculation of
the age and gender adjustment. All adjustments and calculations would be determined
separately for self-only coverage and for other than self-only coverage.
1. Determination of average cost for FEHPB coverage. The average cost of
applicable coverage under the FEHBP (FEHBP average cost) would be determined by
aggregating all claims expenses of the FEHBP standard option and dividing the total by
the number of coverage units. Each employee policyholder would be a coverage unit.
2. Determination of average cost for each age and gender group. Claims
expense data would be sorted into groups, separating the population into male and
female coverage units and further separating each gender population into multi-year
age-bands. For example, the dollar amount of claims for all male individuals between
the ages of 30 and 34 would be added together. The dollar amount of claims for each

15

group would then be divided by the number of coverage units in that age and gender
group to yield the average cost for that group (group average cost). A group average
cost would be calculated in this way for each of the age and gender groups.
3. Determination of group ratios. Each group average cost would be divided by
the FEHBP average cost to establish the ratio (group ratio) of the group average cost to
the FEHBP average cost. The group ratio would be expressed as a fraction or
percentage and would be determined periodically, but less frequently than annually.
4. Determination of group premium cost. The group ratio would be multiplied by
the most recent annual premium cost of the FEHBP standard option to determine the
annual premium cost for each age and gender group (group premium cost). The dollar
amounts representing each group premium cost would then be used to populate the
adjustment tables, to be published annually.
5. Determination of national premium cost. To determine the national premium
cost, each group premium cost would be multiplied by the fraction of employees in the
national workforce who are in that group. The product of each of these calculations
would be added together to yield the national premium cost, which would be a single
dollar amount that would be published annually.
6. Determination of the employer’s premium cost. Each employer would
determine the fraction of its employees who are in each age and gender group. The
employer would then multiply the group premium cost from the relevant adjustment
table by the fraction of its employees in each group. The product of each of these
calculations would be added together to yield the employer’s premium cost, which
would be a single dollar amount.
7. Determination of adjustment. The employer’s premium cost would then be
compared to the national premium cost. If the employer’s premium cost exceeds the
national premium cost, the excess dollar amount would be added to the dollar limit for
that employer for purposes of determining the amount of any excess benefit.
With respect to step one, two different approaches are under consideration. One
approach would rely on actual claims data from the FEHBP standard option. An
alternative approach would rely on national claims data reflecting plans with a design
similar to that of the FEHBP standard option. It is anticipated that only one approach
will be adopted and that it will be applied in a uniform manner.
Treasury and IRS seek comments on this approach to the age and gender
adjustment, including the alternative approaches to step one and whether the approach
to the age and gender adjustment should take into account the age rating scale adopted
in regulations for the individual and small group market.

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VII. NOTICE AND PAYMENT
A. Notice of Calculation of Applicable Share of Excess Benefit
Section 4980I(c)(4)(A) imposes a notification requirement on the employer.
Specifically, that section requires the employer to calculate for each taxable period the
amount of the excess benefit subject to the tax imposed by § 4980I(a) and the
applicable share of that excess benefit for each coverage provider, and to notify the
Secretary and each coverage provider of the amount so determined for each coverage
provider at the time and in the manner as the Secretary may prescribe.
Treasury and IRS are considering both the form in which that information must
be provided to the various coverage providers and IRS, and the time at which that
information must be provided. Comments are requested on the administrative and
other issues raised by this notice requirement, taking into account that this process may
be affected by the rules governing the period over which the cost of applicable coverage
is determined as discussed in section V.B of this notice.
Treasury and IRS anticipate that calculation errors that affect the cost of
applicable coverage may, in some instances, affect multiple coverage providers due to
the allocation of the tax. Comments are invited on how instances of reallocation might
be mitigated or avoided.
B. Payment of the § 4980I Excise Tax
Section 4980I(c)(1) provides that each coverage provider is liable for the excise
tax on its applicable share of the excess benefit with respect to an employee for any
taxable period, but does not specify the time and manner in which the excise tax is paid.
Treasury and IRS are considering designating the filing of Form 720, Quarterly Federal
Excise Tax Return, as the appropriate method for the payment of the tax. Although
Form 720 generally is filed quarterly, under this approach a particular quarter of the
calendar year would be designated for the use of Form 720 to pay the excise tax under
§ 4980I.
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VIII. REQUEST FOR COMMENTS
Treasury and IRS invite comments on the issues addressed in this notice and on
any other issues under § 4980I. This includes an invitation to submit further comments
on issues addressed in Notice 2015-16. For example, in response to Notice 2015-16,
some commenters expressed concern about coordination between the excise tax under

7
This procedure is used for payment of the fee imposed on issuers of specified health insurance policies
and plan sponsors of applicable self-insured health plans to help fund the Patient-Centered Outcomes
Research Institute. The fee is required to be reported only once a year on the second quarter Form 720
and paid by its due date, July 31. See Fees on Health Insurance Policies and Self-Insured Plans for the
Patient-Centered Outcomes Research Trust Fund, 77 Fed. Reg. 72721, 72726-27 (December 6, 2012)
and the Form 720 and accompanying instructions.

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§ 4980I and the assessable payments under § 4980H.
8
Comments are invited on the
circumstances in which the interaction between the provisions of § 4980H and § 4980I
may raise concerns and on whether and how these provisions might be coordinated
consistent with the statutory requirements of these provisions and in a manner that is
administrable for employers and the IRS.
Although many comments submitted in response to Notice 2015-16 are not
reflected in this notice, those comments are under consideration. Those comments and
comments responding to this notice will be used to inform proposed regulations that will
be issued in the future for further public notice and comment.
Public comments should be submitted no later than October 1, 2015. Comments
should include a reference to Notice 2015-52. Send submissions to CC:PA:LPD:PR
(Notice 2015-52), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044. Submissions may be hand delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2015-52),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington,
DC 20044, or sent electronically, via the following e-mail address:
Notice.comments@irscounsel.treas.gov. Please include “Notice 2015-52” in the subject
line of any electronic communication. All material submitted will be available for public
inspection and copying.
IX. RELIANCE
This notice does not provide guidance under § 4980I upon which taxpayers may
rely. No inference should be drawn from any provision of this notice concerning any
provision of § 4980I other than those addressed in this notice or concerning any other
section of the Affordable Care Act.
X. DRAFTING INFORMATION
The principal author of this notice is Karen Levin of the Office of Associate Chief
Counsel (Tax Exempt and Government Entities). For further information regarding this
notice contact Ms. Levin at (202) 317-5500 (not a toll-free call).

8
Generally, under § 4980H, an applicable large employer that fails to offer to its full-time employees
health coverage that is affordable and provides minimum value (as defined in § 36B(c)(2)(C)(ii)) may be
subject to an assessable payment if a full-time employee enrolls in a qualified health plan for which the
employee receives a premium tax credit. Commenters have noted that health coverage providing no
more than minimum value (or only slightly more than minimum value) may exceed the applicable dollar
limit under § 4980I in certain circumstances.