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Health reform law research fee is tax-deductible: IRS

Health reform law research fee is tax-deductible: IRS

A medical outcomes research fee paid by self-funded employers and insurers as mandated by the health care reform law is tax-deductible, the Internal Revenue Service says.

While the Patient Protection and Affordable Care Act specifies that certain fees and taxes — such as the $2,000 per full-time employee fee paid by employers that do not offer health care coverage — are not tax-deductible, the law is silent on the tax treatment of the Patient-Centered Outcomes Research Institute Fee, leaving it to the IRS to decide.

In a memorandum released last week, the IRS noted that Section 162(a) of the Tax Code allows a taxpayer to deduct all “ordinary and necessary expenses” incurred in running its business. An expense, the IRS said, is “ordinary if it is normal, usual or customary in the taxpayer's trade or business.”

The outcomes research fee is an “ordinary and necessary business expense paid or incurred in carrying on a trade or business” and as result is tax-deductible, the IRS said.

The fee will be $1 per plan participant for the first plan year ending after Sept, 30, 2012, and $2 per participant in succeeding years.

For plan years starting after Sept. 30, 2014, the fee will be indexed to reflect the percentage increase in national medical expenditures as published by the U.S. Department of Health and Human Services.

The fee applies to all health care plan participants, including those in retiree-only plans, even though such plans are largely exempt from the PPACA. In the case of self-funded plans, the fee is paid by employers, while insurers are liable for the fee in plans they insure.


Health plan sponsors will welcome to the IRS ruling, experts say.

“Being able to deduct this fee will at least help mitigate its cost impact,” said Rich Stover, a principal with Buck Consultants L.L.C. in Secaucus, N.J.

The first fee payment is due July 31. Earlier, the IRS issued a revised Form 720 — now used to calculate and pay federal excise taxes — that employers and insurers will use to pay the outcomes research fee.