Congress has delayed three Affordable Care Act (ACA) taxes: the medical device excise tax, the health insurance provider fee, and the excise tax on high-dollar health plans. The delays are part of a federal government funding bill signed by President Trump on January 22.
Unless Congress delayed the medical device excise tax, the first payments would have been due January 29. "Addressing the device tax now, before any payments are made on January 29, provides medical technology innovators with the certainty necessary to support future job growth and research and development," the Medical Device Coalition told Congress on January 19.
Medical device tax. The ACA added an excise tax imposed on any manufacturer, producer or importer of certain medical devices. The tax is equal to 2.3 percent of the price for which the medical device is sold. Generally, a taxable medical device means certain devices under the federal Food Drug and Cosmetic Act. Some devices are exempt from the excise tax. These include eyeglasses, contact lenses, and hearing aids.
Comment: Manufacturers or importers of medical devices are responsible for paying the excise tax. The excise tax is reported on Form 720, Quarterly Federal Excise Tax Return. Semi-monthly deposits are generally be required if tax liability exceeds $2,500 for the quarter.
Health insurance provider fee.
The ACA imposes an annual fee on any covered entity that provides health insurance for United States health risks (citizens and residents). The fee is apportioned among providers based on a ratio that reflects their relative share of U.S. health insurance business. A covered entity generally does not include self-insured employers, governmental entities, and voluntary employees’ beneficiary associations (VEBAs). Health insurance for purposes of this fee does not include accident or disability income insurance; indemnity insurance; insurance for a specific disease; long-term care insurance; and supplementary Medicare plans.
Comment : The IRS calculates each provider’s fee and sends a bill that the provider must pay by September 30 each year.
High-dollar health plans. The ACA imposes a 40 percent excise tax on any excess benefit provided to an employee. An excess benefit is the excess, if any, of the aggregate cost of the applicable coverage of the employee for the month over the applicable dollar limit for the employee for the month. Applicable coverage for purposes of the excise tax is coverage under any group health plan made available to the employee by an employer which is excludable from the employee's gross income under Code Sec. 106, or would be so excludable if it were employer-provided coverage (within the meaning of Code Sec. 106).
Previously, Congress approved a moratorium on the medical device excise tax. Because of the moratorium, the medical device excise tax did not apply to sales of taxable medical devices during the period beginning January 1, 2016, and ending December 31, 2017. Congress also delayed the health insurance provider fee and the excise tax on high dollar health plans.
Now, all three taxes are further delayed. The medical device tax is suspended for 2018 and 2019. The health insurance provider fee is delayed for one more year. The excise tax on high-dollar health plans will take effect in 2022.
Comment : Several bills have been introduced in Congress to repeal permanently the medical device excise tax.
Before Congress further delayed the medical device tax, the IRS announced penalty relief. The taxpayer must show a good faith attempt to comply and that the failure was not due to willful neglect. Thereafter, a taxpayer may avoid penalties if it makes an affirmative showing that the failure to deposit is due to reasonable cause and not due to willful neglect.
During the third and fourth calendar quarters of 2018, the IRS will not exercise its authority under Reg. §40.6302(c)-1(b)(2)(v) to withdraw the taxpayer’s right to use the deposit safe harbor rules due to a failure to make deposits as required, provided that the taxpayer demonstrates a good faith attempt to comply and that the failure was not due to willful neglect. The normal rules under Code Sec. 6656 and regs apply to deposits due during the fourth calendar quarter of 2018 and thereafter.
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