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March 29, 2010
New Excise Tax Reporting Requirements Take Effect in 2010 for Violations of COBRA, HIPAA Violations and Other Health Plan Mandates

IRS issues new Form 8928 on excise taxes for failures to comply with COBRA, HIPAA, and other group health plan mandates.


New Reporting Requirement


Sponsors of group health plans are now required to report and pay excise taxes for failure to satisfy COBRA requirements and other federal group health plan mandates.  IRS Form 8928 with the applicable excise tax must be filed by the due date for filing the plan sponsor's federal income tax return (without extensions) for the year in which the failure occurs.  This reporting requirement is effective for returns due on or after January 1, 2010.  Failure to file Form 8928 and pay excise taxes may result in penalties and interest.


In addition to COBRA, the reporting requirement applies to excise taxes incurred for noncompliance with HIPAA portability (including issuing creditable coverage certificates, limits on pre-existing conditions, special enrollment), limits on the collection and use of genetic information under the Genetic Information Nondiscrimination Act (GINA), mandates for pediatric vaccines, mandates such as mental health parity, minimum hospital stays for newborns and mothers, and HSA comparable employer contribution rules as well as to excise taxes for violation of the continued group health plan coverage of postsecondary dependent children on a medically necessary leave from school under Michelle's Law.


Excise Taxes


The excise tax varies based on the type of violation.  

In the case of COBRA failures, the basic tax is $100 per day for each qualifying event in connection with which one or more COBRA failures has occurred.   For the various other group health plan failures the basic tax is $100 per day for each individual to whom a failure applies (certain exceptions apply).


For COBRA, the excise tax is assessed per qualified beneficiary, but is limited to $200 for the total number of qualified beneficiaries in a family.  The excise tax is assessed in addition to any ERISA penalties for late notices.  There is also a per plan, per year limitation for violations that is the lesser of $500,000 or 10% of the aggregate paid by the employer for group health plans.


Relief for Inadvertent Errors


With respect to COBRA and certain other federal health care mandates, the excise tax for violation of the requirements does not apply during any period that the responsible entity didn't know of the failure, or by exercising reasonable diligence would not have known of the failure.


The tax also does not apply if the failure is due to "reasonable cause" and not "willful neglect," and is corrected within 30 days of the date the responsible entity knew or, by exercise of reasonable diligence, should have known of the failure.


To help keep the excise tax risks to a minimum, plan sponsors should follow an approach to compliance designed not only to prevent mistakes from happening but also to catch and correct the ones that inevitably fall through the cracks.

This client alert is intended to inform you of developments in the law and to provide information of general interest.   It is not intended to constitute legal advice regarding a client's specific legal problems and should not be relied upon as such.  This client alert may be considered advertising under the rules of the Massachusetts Supreme Judicial Court.