New Code Section 162(m)(6) Deduction Limit. On December 22, 2010, the IRS released Notice 2011-02 which provides guidance on the application of Section 162(m)(6) of the Internal Revenue Code, a new provision added by the Patient Protection and Affordable Care Act (PPACA). Code Section 162(m)(6) limits to $500,000 the allowable deduction for remuneration for services provided by individuals to certain health insurance providers. Notice 2011-2 does several things including:
- defining which individuals are subject to the limit – a much broader group than the four named executive officers used in the other portions of Code Section 162(m),
- providing examples on how to apply the limit,
- establishing a helpful exception for entities only receiving a de minimis amount of health insurance premiums, and
- clarifying that deferred compensation earned before 2013 will not be subject to the Section 162(m)(6) deduction limitation when paid after the end of the 2012 tax year if the employer is not a post-2012 covered health insurance provider.
The Notice also clarifies that premiums received by reinsurers are not treated as premiums from providing health insurance coverage that might trigger application of Code Section 162(m)(6). However, the Notice does not provide guidance on a hot issue for many large companies with captive insurance companies regarding whether the captive’s receipt of health insurance premiums could subject executives throughout the entire company to the new deduction limit. The Notice requests comments on that and other issues by March 23, 2011.
New Nondiscrimination Requirement for Fully-Insured Health Plans. On the same date, the IRS also released Notice 2011-1 addressing the timing of the application of the PPACA provisions prohibiting insured group health plans from discriminating in favor of highly compensated individuals, effective for plan years beginning after September 23, 2010. The Treasury Department and the IRS, as well as the Departments of Labor and Health and Human Services, have determined that compliance with these requirements should not be required (and, thus, any sanctions for failure to comply do not apply) until after regulations or other administrative guidance of general applicability have been issued. Because noncompliance with the new rule can trigger an excise tax, this Notice was welcome relief for companies struggling to determine how to comply with these requirements by January 1, 2011. Although the IRS has previously requested comments on this topic in Notice 2010-63, in the most recent Notice, the IRS again requested comments on numerous issues by March 11, 2011.