Employer Penalties for COBRA Non-Compliance

Employers who do not follow COBRA requirements can face substantial IRS excise taxes, Department of Labor penalties, and possible lawsuits from affected employees. Below is a summary of the main penalties that may apply.

IRS Excise Tax Penalty

The IRS may assess a tax of $100 per day for each qualified beneficiary affected by the violation, or $200 per day per family. This penalty applies for each day the employer fails to offer or maintain COBRA coverage correctly.

Minimum Penalty Upon Audit

If the IRS discovers non-compliance during an audit and the issue has not been corrected, a minimum penalty of $2,500 per beneficiary can apply, or the daily excise tax noted above, whichever is less.

Penalties for Significant Violations

For violations considered “more than trivial,” the IRS may impose additional penalties of up to $15,000 per violation.

Annual Cap on Penalties

The total annual excise tax for COBRA violations is capped at $500,000 or 10% of the employer’s total group health plan costs from the previous year, whichever amount is lower.

Legal Action by Employees

Employees or beneficiaries who were denied COBRA coverage can sue to recover medical costs that would have been covered. Courts may also order employers to pay the employee’s legal fees if the case is successful.

Correction Period

If the violation is corrected within 30 days and is shown to be unintentional, the IRS may reduce or waive penalties.