A Missed COBRA Obligation Carries A Daily Tax Under Section 4980B
Section 4980B puts an excise tax on a group health plan that fails the continuation coverage requirements of subsection (f). The tax runs by the day and by the person, so a lapse that looks small on the day it happens can grow quickly. General information, not legal or tax advice.
Three Things To Hold Onto
Form 8928 Overview
Part I of the return is where this tax is reported, alongside the other three taxes covered in the overview.
Correction And Relief
A failure fixed promptly can carry no tax at all, which makes timing the central variable.
Who Pays
The employer is the default taxpayer, but outside administrators can be reached too.
A Daily Amount For Each Qualified Beneficiary.
The base tax is $100 for each day of noncompliance, counted separately for each qualified beneficiary. The count starts on the day the failure first occurs and stops when it is corrected, subject to an outer limit in the statute that is tied to the end of the applicable coverage period.
Where one qualifying event affects several members of a family, the statute limits the daily tax to $200. A missed election notice for a household of four therefore does not produce four full daily charges.
Think of the exposure as a meter. It is running from the moment a notice goes undelivered or coverage is cut off too early, and it stops only when someone fixes the problem.
What Raises The Tax And What Limits It.
An examination changes the arithmetic. If a failure occurred during the period under examination and was still uncorrected when the employer received a notice of income tax examination, the tax for each qualified beneficiary is at least the lesser of $2,500 or the amount otherwise owed. If the failures are more than de minimis, the floor is $15,000. The instructions say the floor does not apply to church plans.
For failures due to reasonable cause and not willful neglect, a single-employer plan faces an annual ceiling equal to the lesser of 10 percent of the employer’s group health plan costs for the prior year or $500,000. A separate ceiling of $2,000,000 across all plans applies to service providers who are liable under the statute.
Plans The Statute Excludes.
Section 4980B(d) removes three groups. The first is a plan for which every employer normally employed fewer than 20 employees on a typical business day in the prior calendar year, for qualifying events in the following year. Governmental plans and church plans are the other two.
Exclusion from the tax is not the same as having no continuation duty under every law, so an employer near a threshold should confirm which rules apply before assuming it is exempt.
The Lapses That Start The Clock.
The failures are measured against the continuation requirements, which track the ERISA mandate in 29 U.S.C. 1161. In practice the lapses we see discussed are a general notice that never reached a new participant, an election notice that went out late or not at all, and coverage that ended before the period the beneficiary was entitled to.
Each of these is a records problem as much as a legal one. A dated log of what was sent, to whom and by whom is the evidence that lets an employer show when it knew about a problem and when it fixed it.
More Guides In This Series
Market-Reform Failures And The Section 4980D Excise Tax
What chapter 100 requires and how the daily tax is measured.
Who Files Form 8928 And When It Is Due
Filers, due dates by Part, extensions, payment and the comparability taxes.
Correcting A Health Plan Failure And Reasonable Cause Relief
What correction means and the three routes to a reduced or zero tax.
Who Bears The Form 8928 Excise Tax: Employer, TPA, Insurer And Stop-Loss
How liability splits between the plan sponsor and its vendors.
Laws And Sources
Each citation below supports a statement on this page. Statute text was read at Cornell Law School’s Legal Information Institute and IRS material at irs.gov.
26 U.S.C. 4980B — The continuation coverage excise tax, its limits and who is liable.
IRS, Instructions for Form 8928 — Who must file, due dates, extension, payment, minimums, caps and the reasonable cause waiver.
IRS, Form 8928 — The five Parts of the return and what each one reports.
29 U.S.C. 1161 — The ERISA continuation coverage mandate that parallels section 4980B.
Quick Answers
Short answers on the COBRA excise tax and where it appears on the return.
How Is The Section 4980B Tax Calculated?
The base is $100 per day for each qualified beneficiary during the noncompliance period, limited to $200 per day for family members affected by the same qualifying event. Minimums apply after an examination notice, and annual ceilings apply to reasonable cause failures.
Does A small employer owe the COBRA tax?
Not if every employer maintaining the plan normally employed fewer than 20 employees on a typical business day in the prior calendar year. Governmental and church plans are also excluded by the statute.
Where Is The COBRA Tax Reported?
In Part I of Form 8928, with the result carried to Part V, which shows the tax due or any overpayment. The instructions say the tax is due in full when the form is filed.
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