Updated: Jun 12
There is no specific penalty for failure to report or pay the PCORI fee. However, since this fee is considered an excise tax, any related penalty and interest for failure to file a return or pay a tax would likely apply. In some cases, penalties may be waived if the plan sponsor has reasonable cause and the failure was not due to willful neglect, but they would have to work with the IRS to resolve those kinds of issues.
Unfortunately, no formal instructions have been provided by the IRS for employers who haven’t paid the PCORI fee in past years, so the general recommendation is that employers file a Form 720 for the applicable year (or Form 720X for an amendment to a previously filed Form 720) sooner rather than later for any missed fees and to pay any associated fines or penalties.
Under the IRS’s PCORI Fee webpage, it states under Q/A 16: “A plan sponsor or policy issuer should make corrections to a previously filed Form 720 by filing a Form 720-X, Amended Quarterly Federal Excise Tax Return, including adjustments that result in an overpayment. Form 720-X may be filed anytime within the applicable limitation period. Form 720-X is available on IRS.gov.”
Therefore, if the PCORI fee is paid late, plans may have to file a Form 720 for the applicable year, and then possibly a Form 720-X and add excise tax to it as a late penalty because the 720-X is supposed to be an amendment to some previously-filed Form 720. In other words, they can't file a 720-X unless they've first filed Form 720.
However, keep in mind that employers should consult with their tax advisor or CPA on these details before making any adjusted payments to the IRS because it isn't entirely clear if this is the best method to file late. And we have seen several excise tax penalty assessments come to employers when they attempt to file late. So, again, this could have implications beyond what a benefits advisor can assist with, so we’d recommend understanding the general way to correct it and direct employers to consult with their tax professionals.