Market-Reform Failures Trigger A Separate Daily Tax Under Section 4980D
Section 4980D taxes a group health plan that does not meet the requirements of chapter 100 of the Internal Revenue Code. Part II of Form 8928 reports it. This guide sets out what the chapter reaches and how the tax is measured. General information, not legal or tax advice.
Three Things To Hold Onto
Form 8928 Overview
Part II of the return reports this tax, next to the COBRA, Archer MSA and HSA taxes.
Fixing A Failure
Prompt correction can remove the tax for a reasonable cause failure.
Who Bears The Tax
Insured small employers get relief that others do not.
Chapter 100 Is The Yardstick.
The IRS describes Part II as covering portability, access, renewability and market-reform requirements under sections 9801, 9802, 9803, 9811, 9812, 9813 and 9815. Read together, those sections reach special enrollment and creditable coverage rules (9801), health status nondiscrimination (9802), guaranteed renewability for multiemployer plans and certain multiple employer welfare arrangements (9803), benefits for mothers and newborns (9811), mental health and substance use disorder parity (9812) and dependent students on medically necessary leave (9813).
Section 9815 widens the net. It applies certain requirements of the Public Health Service Act to group health plans and issuers as if they were written into the chapter, which means later health reform standards can be enforced through this excise tax. Self-insured plans are carved out of two of those Public Health Service Act sections.
Another Daily Meter, Counted Per Individual.
The tax is $100 for each day in the noncompliance period, for each affected individual. The period runs from the day the failure first occurs until the day it is corrected.
The same floor applies as under the COBRA tax. When uncorrected failures from the examined period were outstanding at the time of an examination notice, the tax per individual is at least the lesser of $2,500 or the amount otherwise owed, rising to $15,000 when the violations are more than de minimis. Church plans are exempt from the floor.
No tax is due for a period when the liable person did not know of the failure and, with reasonable diligence, would not have known. A reasonable cause failure corrected within 30 days of discovery is also free of tax.
A Narrow Carve-Out.
Section 4980D(d) relieves a small employer whose plan provides benefits solely through health insurance coverage from tax on failures caused by that coverage. A small employer here averaged at least 2 and no more than 50 employees on business days in the prior calendar year and had at least 2 employees on the first day of the plan year.
The relief is limited. Failures tied to section 9811 are excluded from it, and it covers only failures caused by the insurer’s coverage, not failures that arise elsewhere.
More Guides In This Series
COBRA Failures And The Section 4980B Excise Tax
The daily tax per qualified beneficiary, the minimums, the caps and the exclusions.
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. 4980D — The excise tax for chapter 100 failures, its limits and the insured small employer rule.
IRS, Instructions for Form 8928 — Who must file, due dates, extension, payment, minimums, caps and the reasonable cause waiver.
IRS, About Form 8928 — Lists the failures the form reports and links the current form and instructions.
26 U.S.C. 9801 — Opens chapter 100, including creditable coverage and special enrollment.
26 U.S.C. 9802 — Health status nondiscrimination for participants and beneficiaries.
26 U.S.C. 9803 — Guaranteed renewability in multiemployer plans and certain multiple employer welfare arrangements.
26 U.S.C. 9811 — Benefits for mothers and newborns.
26 U.S.C. 9812 — Mental health and substance use disorder parity.
26 U.S.C. 9813 — Dependent students on medically necessary leave.
26 U.S.C. 9815 — Applies certain Public Health Service Act requirements to group health plans.
Quick Answers
Brief answers on what section 4980D reaches and who can escape it.
What does section 4980D cover?
Failures of a group health plan to meet the requirements of chapter 100 of the Code. The IRS lists sections 9801, 9802, 9803, 9811, 9812, 9813 and 9815 as the portability, access, renewability and market-reform requirements reported in Part II.
How much is the daily tax under section 4980D?
$100 for each day of the noncompliance period for each affected individual, with a minimum after an examination notice of the lesser of $2,500 or the tax otherwise owed, and $15,000 where the failures are more than de minimis.
Does buying insurance from A carrier remove the risk?
Only in a narrow case. An employer averaging 2 to 50 employees whose plan is fully insured is not taxed for failures caused by the insurer’s coverage, but the relief excludes section 9811 failures and does not cover the employer’s own administrative lapses.
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