Title 26 — Internal Revenue CodeRelease 119-83
§4980D Failure to meet certain group health plan requirements
Title 26 › Subtitle Subtitle D— - Miscellaneous Excise Taxes › Chapter CHAPTER 43— - QUALIFIED PENSION, ETC., PLANS › § 4980D
Summary
A tax must be paid when a group health plan breaks the group health rules in chapter 100. The basic tax is $100 for each day the plan is out of compliance for each person affected. The noncompliance period runs from the day the problem starts until the day it is fixed. No tax will be charged if the person who would pay the tax did not know about the problem and could not have found it with reasonable care. No tax will be charged if the problem was caused by a reasonable reason (not willful neglect) and it is fixed within 30 days after the payer knew or should have known (church plans follow a different correction deadline). If problems are reasonable but not fixed, the tax for a year is capped. For most employers the cap is the lesser of 10% of what the employer paid the prior year for group health plans or $500,000. For certain multiple-employer trusts the cap is the lesser of 10% of what the trust paid that year for medical care or $500,000. The Secretary can reduce the tax if it would be excessive. If problems are found in an examination and are more than de minimis and not fixed before the audit notice, a higher limit of $15,000 (instead of $2,500) can apply; that rule does not apply to church plans. Small employers (2–50 employees) whose coverage is only through an insurer are not taxed for failures caused only by the insurer (except as to section 9811). The employer is normally liable for the tax; multiemployer plans or certain plans can be liable instead. Group health plan and specified multiple-employer plan are defined terms: a group health plan provides health coverage, and a specified multiple-employer plan is a multiemployer plan or a MEWA. A corrected failure must be undone as much as possible and make the person financially whole. For pharmacy benefit management rules, the PBM is treated like the plan and employer.
Full Legal Text
Title 26, §4980D
Internal Revenue Code — Source: USLM XML via OLRC
(a)There is hereby imposed a tax on any failure of a group health plan to meet the requirements of chapter 100 (relating to group health plan requirements).
(b)(1)The amount of the tax imposed by subsection (a) on any failure shall be $100 for each day in the noncompliance period with respect to each individual to whom such failure relates.
(2)For 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 date such failure is corrected.
(3)Notwithstanding paragraphs (1) and (2) of subsection (c)—
(A)In the case of 1 or more failures with respect to an individual—
(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,
(B)To the extent violations for which any person is liable under subsection (e) for any year are more than de minimis, subparagraph (A) shall be applied by substituting “$15,000” for “$2,500” with respect to such person.
(C)This paragraph shall not apply to any failure under a church plan (as defined in section 414(e)).
(c)(1)No 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 the person otherwise liable for such tax did not know, and exercising reasonable diligence would not have known, that such failure existed.
(2)No 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
(B)(i)in the case of a plan other than a church plan (as defined in section 414(e)), such failure is corrected during the 30-day period beginning on the first date the person otherwise liable for such tax knew, or exercising reasonable diligence would have known, that such failure existed, and
(ii)in the case of a church plan (as so defined), such failure is corrected before the close of the correction period (determined under the rules of section 414(e)(4)(C)).
(3)In the case of failures which are due to reasonable cause and not to willful neglect—
(A)(i)In the case of failures with respect to plans other than specified multiple employer health plans, the tax imposed by subsection (a) for failures during the taxable year of the employer shall not exceed the amount equal to the lesser of—
(I)10 percent of the aggregate amount paid or incurred by the employer (or predecessor employer) during the preceding taxable year for group health plans, or
(II)$500,000.
(ii)For purposes of this subparagraph, if not all persons who are treated as a single employer for purposes of this section have the same taxable year, the taxable years taken into account shall be determined under principles similar to the principles of section 1561.
(B)(i)In the case of failures with respect to a specified multiple employer health plan, the tax imposed by subsection (a) for failures during the taxable year of the trust forming part of such plan shall not exceed the amount equal to the lesser of—
(I)10 percent of the amount paid or incurred by such trust during such taxable year to provide medical care (as defined in section 9832(d)(3)) directly or through insurance, reimbursement, or otherwise, or
(II)$500,000.
(ii)If an employer is assessed a tax imposed by subsection (a) by reason of a failure with respect to a specified multiple employer health plan, the limit shall be determined under subparagraph (A) (and not under this subparagraph) and as if such plan were not a specified multiple employer health plan.
(4)In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive relative to the failure involved.
(d)(1)In the case of a group health plan of a small employer which provides health insurance coverage solely through a contract with a health insurance issuer, no tax shall be imposed by this section on the employer on any failure (other than a failure attributable to section 9811) which is solely because of the health insurance coverage offered by such issuer.
(2)(A)For purposes of paragraph (1), the term “small employer” means, with respect to a calendar year and a plan year, an employer who employed an average of at least 2 but not more than 50 employees on business days during the preceding calendar year and who employs at least 2 employees on the first day of the plan year. For purposes of the preceding sentence, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as one employer.
(B)In the case of an employer which was not in existence throughout the preceding calendar year, the determination of whether such employer is a small employer shall be based on the average number of employees that it is reasonably expected such employer will employ on business days in the current calendar year.
(C)Any reference in this paragraph to an employer shall include a reference to any predecessor of such employer.
(3)For purposes of paragraph (1), the terms “health insurance coverage” and “health insurance issuer” have the respective meanings given such terms by section 9832.
(e)The following shall be liable for the tax imposed by subsection (a) on a failure:
(1)Except as otherwise provided in this subsection, the employer.
(2)In the case of a multiemployer plan, the plan.
(3)In the case of a failure under section 9803 (relating to guaranteed renewability) with respect to a plan described in subsection (f)(2)(B), the plan.
(f)For purposes of this section—
(1)The term “group health plan” has the meaning given such term by section 9832(a).
(2)The term “specified multiple employer health plan” means a group health plan which is—
(A)any multiemployer plan, or
(B)any multiple employer welfare arrangement (as defined in section 3(40) of the Employee Retirement Income Security Act of 1974, as in effect on the date of the enactment of this section).
(3)A failure of a group health plan shall be treated as corrected if—
(A)such failure is retroactively undone to the extent possible, and
(B)the person to whom the failure relates is placed in a financial position which is as good as such person would have been in had such failure not occurred.
(g)In the case of any requirement under section 9826 that applies with respect to an entity providing pharmacy benefit management services on behalf of a group health plan, any reference in this section to such group health plan (and the reference in subsection (e)(1) to the employer) shall be treated as including a reference to such entity.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
section 3(40) of the Employee Retirement Income Security Act of 1974, referred to in subsec. (f)(2)(B), is classified to section 1002(40) of Title 29, Labor. The date of the enactment of this section, referred to in subsec. (f)(2)(B), is the date of enactment of Pub. L. 104–191, which was approved Aug. 21, 1996.
Amendments
2026—Subsec. (g). Pub. L. 119–75 added subsec. (g). 2005—Subsec. (a). Pub. L. 109–135 substituted “plan requirements” for “plans requirements”. 1997—Subsec. (a). Pub. L. 105–34, § 1531(b)(2)(A), substituted “plans” for “plan portability, access, and renewability”. Subsec. (c)(3)(B)(i)(I). Pub. L. 105–34, § 1531(b)(2)(B), substituted “9832(d)(3)” for “9805(d)(3)”. Subsec. (d)(1). Pub. L. 105–34, § 1531(b)(2)(C), inserted “(other than a failure attributable to section 9811)” after “on any failure”. Subsec. (d)(3). Pub. L. 105–34, § 1531(b)(2)(D), substituted “section 9832” for “section 9805”. Subsec. (f)(1). Pub. L. 105–34, § 1531(b)(2)(E), substituted “section 9832(a)” for “section 9805(a)”.
Statutory Notes and Related Subsidiaries
Effective Date
of 1997 Amendment Pub. L. 105–34, title XV, § 1531(c), Aug. 5, 1997, 111 Stat. 1085, provided that: “The
Amendments
made by this section [enacting section 9811 and 9812 of this title, amending this section and section 9801 and 9831 of this title, and renumbering sections 9804 to 9806 of this title as sections 9831 to 9833 of this title] shall apply with respect to group health plans for plan years beginning on or after January 1, 1998.”
Effective Date
Pub. L. 104–191, title IV, § 402(c), Aug. 21, 1996, 110 Stat. 2087, provided that: “The
Amendments
made by this section [enacting this section] shall apply to failures under chapter 100 of the Internal Revenue Code of 1986 (as added by section 401 of this Act).”
Reference
Citations & Metadata
Citation
26 U.S.C. § 4980D
Title 26 — Internal Revenue Code
Last Updated
Apr 18, 2026
Release point: 119-83