---
kind: "section"
citation: "26 U.S.C. § 419"
title: "26"
title_heading: "Internal Revenue Code"
number: "419"
heading: "Treatment of funded welfare benefit plans"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/419"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter D — Deferred Compensation, Etc."
  - "Part I — Pension, Profit-Sharing, Stock Bonus Plans, Etc."
  - "Subpart D — Treatment of Welfare Benefit Funds"
---

# §419. Treatment of funded welfare benefit plans

- (a) **General rule—** Contributions paid or accrued by an employer to a welfare benefit [fund](/usc/26/851.md?p=g-2)—
  - (1) shall not be deductible under this chapter, but
  - (2) if they would otherwise be deductible, shall (subject to the limitation of [subsection (b)](#b)) be deductible under this section for the taxable year in which paid.
- (b) **Limitation—** The amount of the deduction allowable under [subsection (a)(2)](#a-2) for any taxable year shall not exceed the welfare benefit [fund](/usc/26/851.md?p=g-2)’s qualified cost for the taxable year.
- (c) **Qualified cost—** For purposes of this section—
  - (1) **In general—** Except as otherwise provided in this subsection, the term “qualified cost” means, with respect to any taxable year, the sum of—
    - (A) the qualified direct cost for such taxable year, and
    - (B) subject to the limitation of [section 419A(b)](/usc/26/419A.md?p=b), any addition to a qualified asset account for the taxable year.
  - (2) **Reduction for funds after-tax income—** In the case of any welfare benefit [fund](/usc/26/851.md?p=g-2), the qualified cost for any taxable year shall be reduced by such [fund](/usc/26/851.md?p=g-2)’s after-tax income for such taxable year.
  - (3) **Qualified direct cost—**
    - (A) **In general—** The term “qualified direct cost” means, with respect to any taxable year, the aggregate amount (including administrative expenses) which would have been allowable as a deduction to the employer with respect to the benefits provided during the taxable year, if—
      - (i) such benefits were provided directly by the employer, and
      - (ii) the employer used the [cash](/usc/26/856.md?p=c-5-K) receipts and disbursements method of accounting.
    - (B) **Time when benefits provided—** For purposes of [subparagraph (A)](#c-3-A), a benefit shall be treated as provided when such benefit would be includible in the gross income of the [employee](/usc/26/430.md?p=c-7-D-vi) if provided directly by the employer (or would be so includible but for any provision of this chapter excluding such benefit from gross income).
    - (C) **60-month amortization of child care facilities—**
      - (i) **In general—** In determining qualified direct costs with respect to any [child](/usc/26/152.md?p=f-1-A) care facility for purposes of [subparagraph (A)](#c-3-A), in lieu of depreciation the adjusted basis of such facility shall be allowable as a deduction ratably over a period of 60 months beginning with the month in which the facility is placed in service.
      - (ii) **Child care facility—** The term “[child](/usc/26/152.md?p=f-1-A) care facility” means any tangible [property](/usc/26/317.md?p=a) which qualifies under regulations prescribed by the Secretary as a [child](/usc/26/152.md?p=f-1-A) care center primarily for children of [employees](/usc/26/430.md?p=c-7-D-vi) of the employer; except that such term shall not include any [property](/usc/26/317.md?p=a)—
        - (I) not of a character subject to depreciation; or
        - (II) located outside the [United States](/usc/26/993.md?p=g).
  - (4) **After-tax income—**
    - (A) **In general—** The term “after-tax income” means, with respect to any taxable year, the gross income of the welfare benefit [fund](/usc/26/851.md?p=g-2) reduced by the sum of—
      - (i) the deductions allowed by this chapter which are directly connected with the production of such gross income, and
      - (ii) the tax imposed by this chapter on the [fund](/usc/26/851.md?p=g-2) for the taxable year.
    - (B) **Treatment of certain amounts—** In determining the gross income of any welfare benefit [fund](/usc/26/851.md?p=g-2)—
      - (i) contributions and other amounts received from [employees](/usc/26/430.md?p=c-7-D-vi) shall be taken into account, but
      - (ii) contributions from the employer shall not be taken into account.
  - (5) **Item only taken into account once—** No item may be taken into account more than once in determining the qualified cost of any welfare benefit [fund](/usc/26/851.md?p=g-2).
- (d) **Carryover of excess contributions—** If—
  - (1) the amount of the contributions paid (or deemed paid under this subsection) by the employer during any taxable year to a welfare benefit [fund](/usc/26/851.md?p=g-2), exceeds
  - (2) the limitation of [subsection (b)](#b),

  such excess shall be treated as an amount paid by the employer to such [fund](/usc/26/851.md?p=g-2) during the succeeding taxable year.

- (e) **Welfare benefit fund—** For purposes of this section—
  - (1) **In general—** The term “welfare benefit [fund](/usc/26/851.md?p=g-2)” means any [fund](/usc/26/851.md?p=g-2)—
    - (A) which is part of a plan of an employer, and
    - (B) through which the employer provides welfare benefits to [employees](/usc/26/430.md?p=c-7-D-vi) or their beneficiaries.
  - (2) **Welfare benefit—** The term “welfare benefit” means any benefit other than a benefit with respect to which—
    - (A) [section 83(h)](/usc/26/83.md?p=h) applies,
    - (B) [section 404](/usc/26/404.md) applies (determined without regard to [section 404(b)(2)](/usc/26/404.md?p=b-2)), or
    - (C) [section 404A](/usc/26/404A.md) applies.
  - (3) **Fund—** The term “[fund](/usc/26/851.md?p=g-2)” means—
    - (A) any [organization](/usc/26/414.md?p=m-6-A) described in paragraph [(7)](/usc/26/501.md?p=c-7), [(9)](/usc/26/501.md?p=c-9), or [(17)](/usc/26/501.md?p=c-17) of section 501(c),
    - (B) any trust, corporation, or other [organization](/usc/26/414.md?p=m-6-A) not exempt from the tax imposed by this chapter, and
    - (C) to the extent provided in regulations, any account held for an employer by any person.
  - (4) **Treatment of amounts held pursuant to certain insurance contracts—**
    - (A) **In general—** Notwithstanding [paragraph (3)(C)](#e-3-C), the term “[fund](/usc/26/851.md?p=g-2)” shall not include amounts held by an insurance [company](/usc/26/812.md?p=a) pursuant to an insurance [contract](/usc/26/101.md?p=f-3-A) if—
      - (i) such [contract](/usc/26/101.md?p=f-3-A) is a life insurance [contract](/usc/26/101.md?p=f-3-A) described in [section 264(a)(1)](/usc/26/264.md?p=a-1), or
      - (ii) such [contract](/usc/26/101.md?p=f-3-A) is a qualified nonguaranteed [contract](/usc/26/101.md?p=f-3-A).
    - (B) **Qualified nonguaranteed contract—**
      - (i) **In general—** For purposes of this paragraph, the term “qualified nonguaranteed [contract](/usc/26/101.md?p=f-3-A)” means any insurance [contract](/usc/26/101.md?p=f-3-A) (including a reasonable premium stabilization reserve held thereunder) if—
        - (I) there is no guarantee of a renewal of such [contract](/usc/26/101.md?p=f-3-A), and
        - (II) other than insurance protection, the only payments to which the employer or [employees](/usc/26/430.md?p=c-7-D-vi) are entitled are experience rated refunds or policy [dividends](/usc/26/316.md?p=a) which are not guaranteed and which are determined by factors other than the amount of welfare benefits paid to (or on behalf of) the [employees](/usc/26/430.md?p=c-7-D-vi) of the employer or their beneficiaries.
      - (ii) **Limitation—** In the case of any qualified nonguaranteed [contract](/usc/26/101.md?p=f-3-A), [subparagraph (A)](#e-4-A) shall not apply unless the amount of any experience rated refund or policy [dividend](/usc/26/316.md?p=a) payable to an employer with respect to a policy year is treated by the employer as received or accrued in the taxable year in which the policy year ends.
- (f) **Method of contributions, etc., having the effect of a plan—** If—
  - (1) there is no plan, but
  - (2) there is a method or arrangement of employer contributions or benefits which has the effect of a plan,

  this section shall apply as if there were a plan.

- (g) **Extension to plans for independent contractors—** If any [fund](/usc/26/851.md?p=g-2) would be a welfare benefit [fund](/usc/26/851.md?p=g-2) (as modified by [subsection (f)](#f)) but for the fact that there is no [employee](/usc/26/430.md?p=c-7-D-vi)-employer relationship—
  - (1) this section shall apply as if there were such a relationship, and
  - (2) any reference in this section to the employer shall be treated as a reference to the person for whom services are provided, and any reference in this section to an [employee](/usc/26/430.md?p=c-7-D-vi) shall be treated as a reference to the person providing the services.

## Source credit

(Added Pub. L. 98–369, div. A, title V, § 511(a), July 18, 1984, 98 Stat. 854; amended Pub. L. 99–514, title XVIII, § 1851(a)(1), (8)(A), (b)(2)(C)(iv), Oct. 22, 1986, 100 Stat. 2858, 2860, 2863; Pub. L. 100–203, title IX, § 10201(b)(4), Dec. 22, 1987, 101 Stat. 1330–387; Pub. L. 100–647, title I, § 1018(t)(2)(C), Nov. 10, 1988, 102 Stat. 3587; Pub. L. 115–141, div. U, title IV, § 401(b)(21)(A), Mar. 23, 2018, 132 Stat. 1202.)

## Notes

### Editorial Notes

### Amendments

2018—Subsec. (e)(3)(A). Pub. L. 115–141 substituted “or (17)” for “(17), or (20)”.

1988—Subsec. (a)(1). Pub. L. 100–647 substituted “chapter” for “subchapter”.

1987—Subsec. (e)(2)(D). Pub. L. 100–203 struck out subpar. (D) which related to a benefit with respect to which an election under section 463 applies.

1986—Subsec. (a)(1). Pub. L. 99–514, § 1851(b)(2)(C)(iv)(I), substituted “under this subchapter” for “under section 162 or 212”.

Subsec. (a)(2). Pub. L. 99–514, § 1851(b)(2)(C)(iv)(II), substituted “they would otherwise be deductible” for “they satisfy the requirements of either of such sections”.

Subsec. (e)(4). Pub. L. 99–514, § 1851(a)(8)(A), added par. (4).

Subsec. (g)(1). Pub. L. 99–514, § 1851(a)(1), substituted “such a relationship” for “such a plan”.

### Statutory Notes and Related Subsidiaries

### Effective Date of 1988 Amendment

Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

### Effective Date of 1987 Amendment

Amendment by Pub. L. 100–203 applicable to taxable years beginning after Dec. 31, 1987, see section 10201(c)(1) of Pub. L. 100–203, set out as a note under section 404 of this title.

### Effective Date of 1986 Amendment

Amendment by Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

### Effective Date

Pub. L. 98–369, div. A, title V, § 511(e), July 18, 1984, 98 Stat. 862, as amended by Pub. L. 99–514, title XVIII, § 1851(a)(12), (14), Oct. 22, 1986, 100 Stat. 2862, provided that: In general.—Except as otherwise provided in this subsection, the amendments made by this section [enacting this subpart] shall apply to contributions paid or accrued after December 31, 1985, in taxable years ending after such date. Special rule for collective bargaining agreements.—In the case of plan maintained pursuant to 1 or more collective bargaining agreements— between employee representatives and 1 or more employers, and in effect on July 1, 1985 (or ratified on or before such date),the amendments made by this section shall not apply to years beginning before the date on which the last of the collective bargaining agreements relating to the plan terminates (determined without regard to any extension thereof agreed to after July 1, 1985). Special rule for paragraph (2).—For purposes of paragraph (2), any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement added by this section shall not be treated as a termination of such collective bargaining agreement. Special effective date for contributions of facilities.—Notwithstanding paragraphs (1) and (2), the amendments made by this section shall apply in the case of— any contribution after June 22, 1984, of a facility to a welfare benefit fund, and any other contribution after June 22, 1984, to a welfare benefit fund to be used to acquire or improve a facility. Binding contract exceptions to paragraph (4).—Paragraph (4) shall not apply to any facility placed in service before January 1, 1987— which is acquired or improved by the fund (or contributed to the fund) pursuant to a binding contract in effect on June 22, 1984, and at all times thereafter, or the construction of which by or for the fund began before June 22, 1984. Amendments related to tax on unrelated business income.—The amendments made by subsection (b) [amending section 512 of this title] shall apply with respect to taxable years ending after December 31, 1985. For purposes of section 15 of the Internal Revenue Code of 1954 [now 1986], such amendments shall be treated as a change in the rate of a tax imposed by chapter 1 of such Code. Amendments related to excise taxes on certain welfare benefit plans.—The amendments made by subsection (c) [enacting section 4976 of this title] shall apply to benefits provided after December 31, 1985.”

### Savings Provision

For provisions that nothing in amendment by Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining liability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title.

### Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.

### Effective Date of Regulations

Pub. L. 99–514, title XVIII, § 1851(a)(8)(B), Oct. 22, 1986, 100 Stat. 2860, provided that: “Except in the case of a reserve for post-retirement medical or life insurance benefits and any other arrangement between an insurance company and an employer under which the employer has a contractual right to a refund or dividend based solely on the experience of such employer, any account held for an employer by any person and defined as a fund in regulations issued pursuant to section 419(e)(3)(C) of the Internal Revenue Code of 1954 [now 1986] shall be considered a ‘fund’ no earlier than 6 months following the date such regulations are published in final form.”