Guest Article

(From the December 14, 2009 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

New for 2010: Employers Must Self-Report Excise Tax for Failure to Comply with Group Health Plan Requirements

Beginning with the 2010 plan or taxable year, employers and plan administrators will be required to self-report and pay the applicable excise taxes for their failure to comply with certain group health plan requirements. To accomplish the reporting obligation, a new IRS Form 8928 is expected to be finalized. 74 Federal Register 45994 (September 8, 2009).

Specific Group Health Plan Failures that Must Be Reported

Self-reporting will be required for the failure to comply with:

Reporting and Tax Payment Requirements

Earlier this year, the Internal Revenue Service released a draft of new Form 8928 for use in reporting the excise taxes due under the above-listed Internal Revenue Code sections. Still in the draft stage, the form can be viewed on the IRS website at www.irs.gov. The requirement to file Form 8928 applies to plan or taxable years that begin on or after January 1, 2010.

For IRC § 4980B and § 4980D failures, the excise tax is generally $100 per day per affected beneficiary, and is imposed on the employer or, in the case of a multiemployer plan, the plan. (With a COBRA failure, the tax may be imposed on a third-party administrator who is responsible for the failure.) The tax must be paid by the due date for filing the responsible person's Federal income tax return without extension. The tax must be reported by that same date, although Form 7004 as currently drafted would provide a six-month extension of the filing due date if it is timely filed. An exception to the excise is provided where the responsible person did not know, and exercising reasonable diligence would not have known, of the failure. Another exception is provided where the failure was due to reasonable cause and not willful neglect and was corrected within 30 days.

For IRC § 4980E and § 4980G failures, an excise tax is imposed on the employer generally equal to 35 percent of the aggregate amount contributed by the employer to the HSAs or Archer MSAs of all the employees for the calendar year. The tax must be paid by the 15th day of the fourth month following the calendar year in which the non-comparable contributions were made. The tax must be reported by that same date, although Form 7004 as currently drafted would provide a six-month extension of the filing due date if it is timely filed. To the extent the excise tax is excessive and the failure is due to reasonable cause and not willful neglect, the Treasury Secretary can waive the tax.

Penalties

Failure to timely report and pay the excise tax can result in the imposition of late penalties and interest. Generally, the penalty for a late return is 5 percent of the amount due for each month or part of a month the return is late, with a maximum penalty of 25 percent. For the late payment of tax, the penalty is usually one-half of a percent of the unpaid tax for each month or part of a month the tax remains unpaid, with a maximum penalty of 25 percent. Interest is also charged on the unpaid tax. See IRC § 6651 and Instructions to 2008 IRS Form 7004.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2009, Deloitte.