IRS Mandates Self-Reporting Of Welfare Plan Excise Tax
Kenneth A. Mason, Monday, March 01, 2010 | Filed under: Discrimination, Excise Taxes, Health Plans
Years — and in some cases decades — after the enactment of excise taxes on violations of Tax Code provisions relating to employer health plans, the IRS has finally issued guidance on how those taxes are to be reported and paid. Significantly, the burden is now on employers and plan administrators to self-report these taxes. Failure to do so on a timely basis could lead to substantial filing penalties.
This IRS guidance was issued in September of 2009, as part of a regulation defining “comparable” employer contributions to employees’ health savings accounts (“HSAs”). Because this comparability requirement may be avoided simply by allowing employees to make their own HSA contributions through a cafeteria plan — as most employers do — the excise tax component of this regulation package was actually more significant.
These excise taxes are to be reported and paid by filing an IRS Form 8928. Although the IRS has released a draft of this Form, it has yet to issue either a final version or accompanying instructions.
The violations for which excise taxes are reportable on Form 8928 run the gamut of health plan requirements, including taxes imposed under the following statutory provisions:
- The COBRA coverage continuation requirements;
- The HIPAA portability requirements (including issuance of creditable coverage certificates, limitations on pre-existing condition exclusions, offering special enrollment periods, and refraining from discrimination on the basis of health status);
- Minimum coverage of hospital stays for childbirth, as required under the Newborns’ and Mothers’ Health Protection Act;
- The provision of breast reconstruction benefits following mastectomies, as required under the Women’s Health and Cancer Rights Act;
- The Mental Health Parity and Addiction Equity Act;
- The Genetic Information Nondiscrimination Act;
- The extension of coverage for dependent children losing student status due to illness or injury, as required under “Michelle’s Law”;
- The failure to make comparable employer contributions to HSAs; and
- The failure to make comparable employer contributions to Archer Medical Savings Accounts.
The deadline for filing a Form 8928 to report any of these violations (aside from the comparable employer contribution requirement) is the deadline for filing the sponsoring employer’s federal income tax return —
excluding any extensions.
For a calendar-year corporation, this deadline would be March 15 following the calendar year of the violation.
Multiemployer health plans have seven months following the close of the plan year to report and pay these excise taxes. Violations of the comparability requirement must be reported by April 15 of the calendar year following the calendar year in which the noncomparable contributions were made.
These new reporting requirements apply to excise tax returns due on or after January 1, 2010. This means they are already in effect for violations occurring during 2009.
This guidance does not mean that plan sponsors should rush to file these returns. Preexisting IRS guidance provides relief from many of the excise taxes under various circumstances, including unintentional violations. Where there is no tax due, there is no obligation to file this return.
Moreover, most of the violations will not result in any excise taxes if a failure to comply is “corrected” before the IRS discovers the violation. According to the IRS, such correction requires that the failure be retroactively undone to the extent possible and that affected individuals be placed in a financial position as good as they would have been in had the violation not occurred.
These new excise tax reporting regulations heighten the importance of monitoring compliance with these various health plan requirements and then correcting any violations before they come to the attention of the IRS.