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Guest Article

Deloitte logo

(From the February 22, 2010 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

New Form 8928 Issued for Reporting Group Health Plan Excise Taxes

New Form 8928 has been issued for employers and plan administrators to self-report their failure to comply with various group health plan requirements. Effective with the 2010 plan or taxable year, reporting is required for the failure to comply with COBRA, HIPAA, Parity in Mental Health and Substance Use Disorders, the comparable contribution requirement for Health Savings Accounts and Archer Medical Savings Accounts, and others.

New Self-Reporting Obligation

Employers and plan administrators are now required to self-report and pay the applicable excise taxes for their failure to comply with various specific group health plan requirements.

  • In the case of a COBRA or HIPAA failure, the tax is generally $100 per day for each qualifying event for which a COBRA violation occurred, and $100 per day per affected individual per HIPAA violation. The tax is imposed on the employer or, in the case of a multiemployer plan, the plan. With COBRA, the tax may alternatively be imposed on the third-party administrator responsible for the failure. The deadline for reporting and paying the tax is the deadline for filing the responsible person's Federal income tax return without extension. In the case of a multiemployer plan, the deadline is the last day of the seventh month following the close of the plan year. As explained in the Instructions to Form 8928, potential COBRA and HIPAA violations include the failure to:

    • offer continuation coverage to a qualified beneficiary,
    • provide the required level of pediatric vaccine coverage,
    • comply with the limitations on preexisting condition exclusions, certification of creditable coverage, and special enrollment requirements,
    • provide the required 48-hour and 96-hour hospital length of stay in connection with childbirth for mothers and newborns, and
    • provide parity in mental health and substance use disorder benefits.

Exceptions to the excise tax are provided for failures that are due to reasonable cause and not willful neglect.

  • In the case of non-comparable contributions to an HSA or Archer MSA, the tax is generally 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 deadline for reporting and paying the tax is the 15th day of the fourth month following the calendar year in which the non-comparable contributions were made.

Exceptions to the excise tax are provided where the tax is excessive and the failure is due to reasonable cause and not willful neglect.

As explained in the Instructions, a properly filed Form 7004 will provide a six-month extension for the filing date of the Form 8928, but will not extend the deadline for payment of the excise taxes.

Form 8928 -- Separate Reporting for Certain "Reasonable Cause" Failures

The Form requires separate reporting of COBRA and HIPAA violations that are due to "reasonable cause and not willful neglect." Unfortunately, the Instructions provide no guidance on how to determine whether a violation falls within this category. No excise tax applies if such "reasonable cause" failures go undiscovered despite exercising reasonable diligence, or if the failures are corrected within 30 days after the person liable for the tax knew or should have known of the failure. Where the failure was due to reasonable cause but not corrected before a notice of examination was sent, however, an excise tax of $2,500 per affected qualified beneficiary will apply in the case of a de minimis violation (or $15,000 per affected qualified beneficiary in the case of violations that are more than de minimis). The tax is capped at 10 percent of the aggregate amount paid by the group health plan during the preceding year, and potentially limited by other caps provided on the Form. Failures that are not due to "reasonable cause" are separately reported and the related excise tax is generally not subject to caps or maximums.

In the case of the comparable contribution requirement for HSAs and Archer MSAs under IRC §§ 4980E or 4980G, no separate reporting -- or reduced excise taxes -- is provided for "reasonable cause" violations. The Instructions to Form 8928 do acknowledge, however, that for such failures the Secretary may waive all or part of the taxes to the extent payment would be excessive relative to the failure. Unlike COBRA and HIPAA, reduced penalties for HSA and Archer MSA "reasonable cause" violations are not included as part of the Form 8928.

The new reporting and tax obligations provide a keen incentive for employers and plan administrators to find and correct COBRA and HIPAA violations as soon as possible, and to ensure that comparable contributions are made to HSAs and Archer MSAs. Failure to timely file the Form 8928 and pay the related excise taxes can result in further late filing and late payment penalties.

Deloitte logoThe 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, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955.

Copyright 2010, Deloitte.

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