Beginning January 1, 2010, plan sponsors who fail to comply with requirements for group health plans will be required to self-report excise taxes on IRS Form 8928. Historically, the Code has provided that plan sponsors are liable for excise taxes for failure to comply with COBRA, HIPAA portability and nondiscrimination rules, and other federal mandates applicable to group health plans, but the excise taxes received little attention and were the subject of few enforcement efforts. However, the IRS recently issued final regulations that impose the duty to self-report excise taxes to the IRS on Form 8928.
Beginning January 1, 2010, plan sponsors (or plan administrators of multiemployer plans) must self-report excise tax liability due to non-compliance with the following federal mandates, unless timely corrected:
- HIPAA's portability and nondiscrimination rules,
- Newborns' and Mothers' Health Protection Act ("NMHPA"),
- Mental Health Parity and Addiction Equity Act ("MHPAEA"),
- Health savings account ("HSA") comparable employer contribution rules,
- Michelle's Law,
- Genetic Information Nondiscrimination Act ("GINA") and
- Archer MSA comparable employer contribution rules.
The amount of excise tax due varies depending on the federal mandate violated by the plan sponsor. For violations of COBRA, the HIPAA portability and nondiscrimination rules, NMHPA, MHPAEA, Michelle's Law and GINA (collectively, the "Group Health Mandates"), the excise tax is $100 per person per day for each day of noncompliance. For violations of HSA and Archer MSA comparable employer contribution rules, the tax is generally 35% of all employer contributions made to all HSAs and MSAs during the applicable calendar year.
Form 8928 and the requisite excise tax are due at different times depending on the violation. For noncompliance with the Group Health Mandates, Form 8928 is due on or before the due date, without extension, of the employer's federal tax return. For noncompliance with the Archer MSA and HSA comparable employer contribution rules, Form 8928 is due on or before the April 15 following the calendar year in which the non-comparable contributions were made.
There are exceptions to the excise tax. Plan sponsors are not liable for the excise tax for violations of Group Health Mandates where the failure to comply is not discovered by exercising reasonable diligence or where the failure is due to reasonable cause, not willful neglect, and is corrected in a timely manner. The IRS defines "correction" to mean that the failure is retroactively undone to the extent possible, and the person to whom the failure relates is placed in a financial position that is as good as if the failure had not occurred. Additionally, plan sponsors are not liable for the excise tax for violations of Archer MSA and HSA comparable employer contribution rules if the employer corrects the failure by making additional contributions to satisfy the rules, plus reasonable interest, until the April 15 following the calendar year in which the non-comparable contributions were made.
In order to comply with the new regulations, plan sponsors need to establish an administrative system to identify violations of the applicable federal mandates, correct (if possible) the violations, and determine the amount of excise tax, if applicable, due to the IRS. Additionally, plan sponsors should coordinate with third-party administrators to ensure that they have the proper compliance systems in place to avoid excise tax liability.