Beware of this Tax included in the Affordable Care Act

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Hidden within the Affordable Care Act is a new tax that many businesses are not aware of. It is called the Patient-Centered Outcomes Research Fee, effective for plan years ending on or after October 1, 2012. All employers who offer healthcare benefits to their employees will be subject to this new tax. If the plan is an insured plan (the employer pays monthly premiums to an insurance provider), no problem. The insurance company will calculate and pay the tax. If the plan is self-insured by the employer or is a Health Reimbursement Arrangement (HRA), or Flexible Spending Account (FSA) offered through a cafeteria plan, the employer is responsible for calculating and paying the tax unless it qualifies as an exempt plan. Generally, an HRA is not exempt from these rules unless the HRA plan is connected to a self-insured health plan providing major medical benefits. In that case, the employer will only need to pay the tax with the self-insured plan. FSA’s will only need to pay the tax if the employer does not offer a group health plan to employees or the plan provides for benefits more than two times any participant contribution to the plan.

The tax is $1.00 multiplied by the average number of lives covered under the plan for that plan year. Generally, for self-insured plans the lives covered will include employees and their dependents. For HRA’s and HSA’s, the employer will only count participants covered by the plan, and not dependents. For plan years beginning before July 11, 2012, plan sponsors may determine the average number of covered lives using any reasonable method. All others must use either the Actual Count Method (determine number of covered lives each day and divide by the number of days in the year), the snapshot method (same as Actual Count Method, but only calculated using end of quarter numbers) or the Form 5500 method (select a date in the plan year that is representative of the entire year).

The tax is paid using Form 720 for the second quarter of a year. Generally, the tax will be paid for plan years ending during the preceding calendar year. The due date for filing and paying the tax is July 31 of the subsequent calendar year; therefore, the first payment will be due July 31, 2013 for those plans with year ending dates between October 1, 2012 and December 31, 2012. The tax increases to $2 per covered life in the second year. The IRS will announce the amount of the tax for subsequent years. The tax is scheduled to expire for plan years ending on or after October 1, 2019.

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