Frequently Asked Questions
Who is eligible for the COBRA Noncompliance Tax Grace Period?
The failure must be due to reasonable cause and not willful neglect, and full correction must occur within 30 days of when the employer knew or should have known of the failure.
How does the COBRA Noncompliance Tax Grace Period work?
Eliminates the $100/day excise tax for COBRA failures if the failure was due to reasonable cause and is corrected within 30 days of discovery.
What law authorizes the COBRA Noncompliance Tax Grace Period?
The COBRA Noncompliance Tax Grace Period is authorized under IRC §4980B(c)(2) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §4980B
Source: Internal Revenue Code, Title 26, United States Code
§ 4980B. Failure to satisfy continuation coverage requirements of group health plans(a) General ruleThere is hereby imposed a tax on the failure of a group health plan to meet the requirements of subsection (f) with respect to any qualified beneficiary.
(b) Amount of tax(1) In generalThe amount of the tax imposed by subsection (a) on any failure with respect to a qualified beneficiary shall be $100 for each day in the noncompliance period with respect to such failure.
(2) Noncompliance periodFor purposes of this section, the term “noncompliance period” means, with respect to any failure, the period—(A) beginning on the date such failure first occurs, and
(B) ending on the earlier of—(i) the date such failure is corrected, or
(ii) the date which is 6 months after the last day in the period applicable to the qualified beneficiary under subsection (f)(2)(B) (determined without regard to clause (iii) thereof).
If a person is liable for tax under subsection (e)(1)(B) by reason of subsection (e)(2)(B) with respect to any failure, the noncompliance period for such person with respect to such failure shall not begin before the 45th day after the written request described in subsection (e)(2)(B) is provided to such person.
(3) Minimum tax for noncompliance period where failure discovered after notice of examinationNotwithstanding paragraphs (1) and (2) of subsection (c)—(A) In generalIn the case of 1 or more failures with respect to a qualified beneficiary—(i) which are not corrected before the date a notice of examination of income tax liability is sent to the employer, and
(ii) which occurred or continued during the period under examination,
the amount of tax imposed by subsection (a) by reason of such failures with respect to such beneficiary shall not be less than the lesser of $2,500 or the amount of tax which would be imposed by subsection (a) without regard to such paragraphs.
(B) Higher minimum tax where violations are more than de minimisTo the extent violations by the employer (or the plan in the case of a multiemployer plan) for any year are more than de minimis, subparagraph (A) shall be applied by substituting “$15,000” for “$2,500” with respect to the employer (or such plan).
(c) Limitations on amount of tax(1) Tax not to apply where failure not discovered exercising reasonable diligenceNo tax shall be imposed by subsection (a) on any failure during any period for which it is established to the satisfaction of the Secretary that none of the persons referred to in subsection (e) knew, or exercising reasonable diligence would have known, that such failure existed.
(2) Tax not to apply to failures corrected within 30 daysNo tax shall be imposed by subsection (a) on any failure if—(A) such failure was due to reasonable cause and not to willful neglect, and
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