Affordable Care Act Tax Provisions

A new Additional Medicare Tax went into effect on January 1, 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation and self-employment income that exceeds a threshold amount based on the individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately and $200,000 for all other taxpayers. An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year. On Nov. 26, 2013, the IRS and the Department of the Treasury issued final regulations PDF which provide guidance for employers and individuals relating to the implementation of Additional Medicare Tax, including the requirement to withhold Additional Medicare Tax on certain wages and compensation, the requirement to report Additional Medicare Tax, and the employer process for adjusting underpayments and overpayments of Additional Medicare Tax. In addition, the regulations provide guidance on the employer and individual processes for filing a claim for refund for an overpayment of Additional Medicare Tax. For additional information on the Additional Medicare Tax, see our questions and answers.

For tax years 2010 and 2011, the Affordable Care Act raised the maximum adoption credit per child and the credit was refundable. For more information related to the adoption credit for tax years 2010 and 2011, see our news release, tax tip, Notice 2010-66 PDF, Revenue Procedure 2010-31 PDF, Revenue Procedure 2010-35 PDF and Revenue Procedure 2011-52 PDF.

For tax year 2012, the credit has reverted to being nonrefundable, with a maximum amount (dollar limitation) of $12,650 per child. If you adopted a child in 2012, see Tax Topic 607 for more information. 

On June 10, 2016, the Treasury Department and Internal Revenue Service, the Department of Health and Human Services, and the Department of Labor (the Departments) issued proposed regulations PDF that implement the Expatriate Health Coverage Clarification Act of 2014 (EHCCA).  The EHCCA generally provides that most ACA provisions do not apply to expatriate health plans covering individuals traveling to or from the United States.  More specifically, the EHCCA provides that the requirements of the ACA do not apply to expatriate health plans, expatriate health insurance issuers for coverage under expatriate health plans, and employers in their capacity as plan sponsors of expatriate health plans, except that:  (1) an expatriate health plan shall be treated as minimum essential coverage under section 5000A(f) of the Code and any other section of the Code that incorporates the definition of minimum essential coverage; (2) the employer shared responsibility provisions of section 4980H of the Code continue to apply; (3) the health care reporting provisions of sections 6055 and 6056 of the Code continue to apply but with certain modifications relating to the use of electronic media for required statements to enrollees; (4) the excise tax provisions of section 4980I of the Code continue to apply with respect to coverage of certain qualified expatriates who are assigned (rather than transferred) to work in the United States; and (5) the annual health insurance providers fee imposed by section 9010 of the ACA takes into account expatriate health insurance issuers for certain purposes for calendar years 2014 and 2015 only.  The EHCCA proposed regulations provide that the market reform provisions enacted as part of the ACA generally do not apply to expatriate health plans, any employer solely in its capacity as a plan sponsor of an expatriate health plan, and any expatriate health insurance issuer with respect to coverage under an expatriate health plan.  Further, the EHCCA proposed regulations define the benefit and administrative requirements for expatriate health issuers, expatriate health plans, and qualified expatriates, and provide clarification regarding the applicability of certain fee and reporting requirements.

Health coverage for an employee's children under 27 years of age is now generally tax-free to the employee. This expanded health care tax benefit applies to various work place and retiree health plans. These changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return. Learn more by reading our news release or this notice PDF.

Effective January 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements (FSAs) or health reimbursement arrangements unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. This standard applies only to purchases made on or after January 1, 2011. A similar rule went into effect on January 1, 2011, for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs). Employers and employees should take these changes into account as they make health benefit decisions. For more information, see news release IR-2010-95, Notice 2010-59 PDF, Revenue Ruling 2010-23 PDF and our questions and answers. FSA and HRA participants can continue using debit cards to buy prescribed over-the-counter medicines, if requirements are met. For more information, see news release IR-2010-128 and Notice 2011-5 PDF. Additionally, Notice 2013-57 PDF provides information about the definition of preventive care for purposes of high deductible health plans associated with HSAs. 

In addition, starting in 2013, there are new rules about the amount that can be contributed to an FSA. Notice 2012-40 PDF provides information about these rules and flexibility for employers applying the new rules. On October 31, 2013, the Department of the Treasury and IRS issued Notice 2013-71 PDF, which provides information on a new $500 carryover option for employer-sponsored healthcare flexible spending arrangements. Learn more by reading the news release issued by the U.S. Department of the Treasury.

Further, Notice 2013-54 PDF provides guidance regarding the application of the Affordable Care Act’s market reforms to certain health FSAs.

On February 5, 2016, the Treasury Department and IRS issued Notice 2016-17 PDF, which provides guidance on the application of certain provisions of the Affordable Care Act to premium reduction arrangements offered in connection with student health plans.  The notice also provides temporary transition relief from enforcement by the Treasury Department, DOL and HHS in certain circumstances.  On February 5, 2016, DOL issued similar guidance in Technical Release 2016-01 and HHS issued similar guidance in an Insurance Standards Bulletin PDF.

Starting in 2014, the individual shared responsibility provision calls for each individual to either have minimum essential coverage for each month, qualify for an exemption or make a payment when filing his or her federal income tax return. On June 26, 2013, the IRS released Notice 2013-42 PDF, which provides transition relief for employees eligible to enroll in a non-calendar year employer-sponsored health plan that begins in 2013 and ends in 2014. On August 27, 2013, the Department of the Treasury and the IRS issued final regulations PDF on the individual shared responsibility provision. This amount is used to determine the maximum individual shared responsibility payment that may be due. On November 21, 2014, the Department of the Treasury and the IRS issued final regulations addressing the treatment of health reimbursement arrangements, cafeteria plans, and wellness program incentives for purposes of determining the unaffordability exemption for individuals with offers of employer sponsored coverage. The regulations also provide that certain limited benefit Medicaid and TRICARE coverage is not minimum essential coverage (Notice 2014-10 PDF, issued on January 23, 2014, provides transition relief from the shared responsibility payment for months in 2014 in which individuals have this limited benefit coverage). On November 21, 2014, the IRS issued Notice 2014-76 PDF, which identifies the hardship exemptions from the individual shared responsibility payment that a taxpayer may claim on a federal income tax return without obtaining an exemption certification from a Health Insurance Marketplace. For additional information on the individual shared responsibility provision, see our ISRP page and questions and answers. Additional information on exemptions and minimum essential coverage is available in final regulations issued by the U.S. Department of Health & Human Services. 

See Tax Provisions for Employers.

See Tax Provisions for Other Organizations.

Beginning January 1, 2013, you can claim deductions for medical expenses not covered by your health insurance when they reach 10 percent of your adjusted gross income. This change affects your 2013 tax return that you will file in 2014. There is a temporary exemption from January 1, 2013, to December 31, 2016, for individuals age 65 and older and their spouses. For additional information, see our questions and answers.

The Affordable Care Act provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan’s coverage gap. This payment is not taxable. This payment is not made by the IRS. More information can be found at www.medicare.gov.

A Net Investment Income Tax went into effect on January 1, 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. On November 26, 2013, the IRS and the Treasury Department issued final regulations PDF, which provide guidance on the general application of the Net Investment Income Tax and the computation of Net Investment Income. In addition, on November 26, 2013, the IRS and the Treasury Department issued proposed regulations PDF on the computation of net investment income as it relates to certain specific types of property. Comments may be submitted electronically, by mail or hand delivered to the IRS. For additional information on the Net Investment Income Tax, see our questions and answers.

Starting in 2014, individuals and families can take a new premium tax credit to help them afford health insurance coverage purchased through an Affordable Insurance Exchange (also known as a Health Insurance Marketplace). The premium tax credit is refundable so taxpayers who have little or no income tax liability can still benefit. The credit also can be paid in advance to a taxpayer’s insurance company to help cover the cost of premiums. On May 18, 2012, the Department of the Treasury and the IRS issued final regulations PDF, which provide guidance for individuals who enroll in qualified health plans through Marketplaces and claim the premium tax credit, and for Marketplaces that make qualified health plans available to individuals and employers. On Jan. 30, 2013, the Department of the Treasury and IRS released final regulations PDF on the premium tax credit affordability test for related individuals. Notice 2013-41 PDF, issued on June 26, 2013, provides information for determining whether or when individuals are considered eligible for coverage under certain Medicaid, Medicare, CHIP, TRICARE, student health or state high-risk pool programs. This determination will affect whether the individual is eligible for the premium tax credit. On November 7, 2014, the Department of the Treasury and IRS issued Notice 2014-71 PDF, which advises that an individual enrolled in a qualified health plan who becomes eligible for Medicaid coverage for pregnancy-related services that is minimum essential coverage, or for CHIP coverage based on pregnancy, is treated as eligible for minimum essential coverage under the Medicaid or CHIP coverage for purposes of the premium tax credit only if the individual enrolls in the coverage.

On April 30, 2013, the Department of the Treasury and the IRS issued proposed regulations PDF relating to minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit. On November 4, 2014, the Department of the Treasury and IRS issued Notice 2014-69 PDF, which provides additional guidance regarding whether an employer-sponsored plan provides minimum value coverage if the plan fails to substantially cover in-patient hospitalization services or physician services. Notice 2014-69 PDF also advises taxpayers that the Department of Treasury and the IRS intend to propose new regulations providing that plans that fail to provide substantial coverage for inpatient hospitalization or physician services do not provide minimum value. On August 31, 2015, the Department of Treasury and the IRS issued proposed regulations PDF supplementing the prior proposed regulations and amending the definition of minimum value. On December 16, 2015, the Department of Treasury and IRS issued final regulations PDF providing guidance on the Premium Tax Credit.  The final regulations adopted some of the proposed rules regarding the Premium Tax Credit, including the definition of Modified Adjusted Gross Income (MAGI); rating areas for purposes of determining benchmark plans used in determining applicable credits; the effect of eligibility for COBRA continuation coverage on Premium Tax Credit eligibility; coverage months for newborns and new adoptees; proration of monthly premiums for individuals enrolled for less than a month; and determining the benchmark plan for family members living at different addresses.  The final regulations also withdrew and re-proposed some of the rules relating to minimum value of eligible employer-sponsored plans and reserved on other proposed rules relating to minimum value of eligible employer-sponsored plans.  The re-proposed and reserved rules will be finalized separately.

On July 24, 2014, the Department of the Treasury and the IRS issued proposed, temporary and final regulations PDF providing further guidance on the premium tax credit. In particular, the regulations provide relief for certain victims of domestic abuse or spousal abandonment from the requirement to file jointly in order to claim the premium tax credit. In addition, the regulations provide special allocation rules for reconciling advance credit payments, address the indexing in future years of certain amounts used to determine eligibility for the credit and compute the credit, and provide rules for the coordination between the credit and the deduction under section 162(l) for health insurance costs of self-employed individuals. Rev. Proc. 2014-41 PDF, also released on July 24, 2014, provides methods for determining the section 162(l) deduction and the premium tax credit for health insurance costs of self-employed individuals who claim the deduction under section 162(l). 

On May 2, 2014, the Department of the Treasury and the IRS issued final regulations on the reporting requirements for Marketplaces.

On Jan. 26, 2015, the IRS issued Notice 2015-9 PDF, which provides limited penalty relief for taxpayers who have a balance due on their 2014 income tax return as a result of reconciling advance payments of the premium tax credit against the premium tax credit allowed on the tax return. Specifically, Notice 2015-9 provides relief from the penalty under section 6651(a)(2) for late payment of a balance due and the penalty under section 6654(a) for underpayment of estimated tax. The relief applies only for the 2014 taxable year.

On April 10, 2015, the IRS issued Notice 2015-30 PDF providing penalty relief for the 2014 taxable year for taxpayers who received a Form 1095-A, Health Insurance Marketplace Statement, that was delayed or believed to be incorrect and who timely file their 2014 income tax return, including extensions. This relief applies to the following (1) the penalty for late payment of a balance due (section 6651(a)(2)), (2) the penalty for failure to pay an amount due upon notice and demand (section 6651(a)(3)), (3) the penalty for underpayment of estimated tax (section 6654(a), and (4) the accuracy-related penalty (section 6662).

On April 24, 2015, the IRS issued Notice 2015-37 PDF, which advises that an individual who may enroll in a CHIP buy-in program that HHS has designated as minimum essential coverage is eligible for minimum essential coverage under the program for purposes of the premium tax credit only for the period the individual is enrolled.
On December 22, 2015, the IRS issued Notice 2016-02 PDF, which provides guidance for taxpayers eligible to claim the Health Coverage Tax Credit who enrolled in a qualified health plan through a Health Insurance Marketplace in tax years 2014 or 2015, and who claimed or are eligible to claim the premium tax credit. 

On July 8, 2016, the Department of the Treasury and the IRS issued proposed regulations PDF providing further guidance on the premium tax credit.  In particular, the proposed regulations address various issues regarding:  (1) eligibility for the premium tax credit (including how opt-out arrangements affect an employee’s required contribution); (2) the due date for payment of premiums in the case of retroactive enrollments; (3) the premium assistance amount when certain coverage is terminated mid-month; (4) the benchmark plan premium (including how pediatric dental benefits affect the benchmark plan premium); (5) the reconciliation of advance payments for an individual whom no one claims as a dependent; and (6) certain information reporting rules.

For more information on the credit, see our premium tax credit page and our questions and answers.

See Tax Provisions for Individuals.

The Affordable Care Act establishes that certain employers must offer health coverage to their full-time employees or a shared responsibility payment may apply. On Feb. 10, 2014, the Department of the Treasury and the IRS issued final regulations PDF on the Employer Shared Responsibility provisions. For additional information on the Employer Shared Responsibility provisions and the proposed regulations, see our questions and answers. On July 9, 2013, the Department of the Treasury and the IRS announced transition relief from the Employer Shared Responsibility provisions for 2014. For more information, please see Notice 2013-45 PDF. For additional transition relief generally applicable to 2015, see the preamble to the final regulations. On Sept. 18, 2014, the Department of the Treasury and the IRS issued Notice 2014-49 PDF, which provides guidance on how to apply the look-back measurement method in situations in which the measurement period applicable to an employee changes. On December 16, 2015, the Treasury Department and IRS issued Notice 2015-87 PDF which provides further guidance on the application of various provisions of the ACA to employer-provided health coverage.  Specifically,  the notice provides guidance on: (1) certain aspects of the employer shared responsibility provisions (ESRP), including clarifying the identification of employee contributions when employers offer health reimbursement arrangements (HRAs), flex credits, opt-out payments, or fringe benefits payments required under the McNamara-O’Hara Service Contract Act or other similar laws; (2) the application of the adjusted 9.5 percent affordability threshold under the Premium Tax Credit rules to the section ESRP safe harbor provisions; (3) the employer status of certain entities for section ESRP purposes; (4) certain aspects of the application of the ESRP rules to government entities; (5) the information reporting provisions for applicable large employers; (6) the application of the rules for health savings accounts (HSAs) to persons eligible for benefits administered by the Department of Veterans Affairs; and (7) the application of the COBRA continuation coverage rules to unused amounts in a health flexible spending arrangement (health FSA) carried over and available in later years, and conditions that may be put on the use of carryover amounts.

See Tax Provisions for Other Organizations.

See Tax Provisions for Individuals.

See Tax Provisions for Other Organizations.

On December 16, 2015, the Department of Treasury and IRS issued Notice 2015-87 PDF which provides further guidance on the application of the market reforms that apply to group health plans under the ACA to various types of employer health care arrangements.  This notice supplements the guidance provided in Notice 2013-54, Notice 2015-17 PDF and the final regulations PDF implementing the market reform provisions of the ACA.

See Tax Provisions for Individuals.

See Tax Provisions for Individuals.

The Affordable Care Act’s market reforms apply to group health plans. On September 13, 2013, the IRS issued Notice 2013-54 PDF, which explains how the Affordable Care Act’s market reforms apply to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. The notice also provides guidance on employee assistance programs or EAPs and on section 125(f)(3), which prohibits the use of pre-tax employee contributions to cafeteria plans to purchase coverage on an Affordable Insurance Exchange (also known as a Health Insurance Marketplace). The notice applies for plan years beginning on and after January 1, 2014, but taxpayers may apply the guidance provided in the notice for all prior periods. On February 18, 2015, the IRS issued Notice 2015-17 PDF which provides transition relief from the excise tax under section 4980D with respect to failures to satisfy the market reforms by certain small employers reimbursing premiums for individual insurance policies, S corporations reimbursing premiums for 2-percent shareholders, and certain health care arrangements for employees with health coverage under Medicare and TRICARE.

DOL has issued a notice in substantially identical form to Notice 2013-54, DOL Technical Release 2013-03. On January 24, 2013, DOL and HHS issued FAQs that address the application of the Affordable Care Act to HRAs. On November 6, 2014, DOL issued additional FAQs PDF that address the application of the Affordable Care Act to HRAs and other payment arrangements.

Additional information is also available regarding consequences to the employer if the employer does not establish a health insurance plan for its own employees, but reimburses those employees for premiums they pay for health insurance (either through a qualified health plan in the Marketplace or outside the Marketplace).

On January 9, 2014, DOL and HHS issued FAQs that addressed, among other things, future rules relating to excepted benefits.

On December 16, 2015, the Treasury Department and IRS issued Notice 2015-87 PDF which provides further guidance on the application of various provisions of the ACA to employer-provided health coverage.  Notice 2015-87 provides guidance on the application of the market reforms that apply to group health plans under the ACA to various types of employer health care arrangements.  The notice includes guidance that covers: (1) health reimbursement arrangements (HRAs), including HRAs integrated with a group health plan, and similar employer-funded health care arrangements; and (2) group health plans under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, such as a reimbursement arrangement described in Revenue Ruling 61-146, or an arrangement under which the employer uses its funds to directly pay the premium for an individual health insurance policy covering the employee (collectively, an employer payment plan).  The notice supplements the guidance provided in Notice 2013-54 PDF; FAQs about the Affordable Care Act Implementation (Part XXII) PDF issued by the Department of Labor on November 6, 2014; Notice 2015-17 PDF; and final regulations PDF implementing the market reform provisions of the ACA published on November 18, 2015. 

On June 13, 2019, IRS, DOL and HHS issued final rules PDF regarding health reimbursement arrangements  and other account-based group health plans. Specifically, the final rules allow integrating HRAs and other account-based group health plans with individual health insurance coverage or Medicare, if certain conditions are satisfied (an individual coverage HRA). The final rules also set forth conditions under which certain HRAs and other account-based group health plans will be recognized as limited excepted benefits.

The Further Consolidated Appropriations Act, 2020 H.R. 1865 (Pub.L.116-94) was signed into law December 20, 2019. The act repealed Internal Revenue Code Section 4980I, the excise tax on high cost employer-sponsored health coverage.

On March 5, 2014, the Department of the Treasury and IRS issued final regulations PDF on employer health insurance coverage information reporting by applicable large employers to the IRS and its employees. The information reporting relates to health insurance coverage that is offered by certain employers, referred to as applicable large employers, and reporting is to be provided by each member of an applicable large employer. Additionally, on July 9, 2013, the Department of the Treasury and the IRS issued Notice 2013-45 PDF, announcing transition relief for 2014 from this annual information reporting. For additional information on the employer health insurance coverage information reporting see our questions and answers and this fact sheet issued by the U.S. Department of the Treasury.

The 2015 Forms 1095-C and 1094-C and instructions that employers will use to report on health coverage that they offer to their employees are available. On December 28, 2015, IRS issued Notice 2016-4 PDF, which extends the due dates for the 2015 information reporting requirements, both furnishing to individuals and filing with the Internal Revenue Service (Service), for insurers, self-insuring employers, and certain other providers of minimum essential coverage under I.R.C. § 6055, and the information reporting requirements for applicable large employers under I.R.C. § 6056.  Specifically, this Notice (1) extends the due date for furnishing the 2015 Form 1095-B, Health Coverage, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from January 31, 2016, until March 31, 2016, and (2) extends the due date for filing with the Service the 2015 Form 1094-B, Transmittal of Health Coverage Information Returns, the 2015 Form 1095-B, Health Coverage, the 2015 Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage from February 29, 2016, to May 31, 2016 if not filing electronically, and from March 31, 2016, to June 30, 2016 if filing electronically. This Notice also provides guidance to individuals who, as a result of these extensions, might not receive a Form 1095-B or Form 1095-C by the time they file their 2015 tax returns.

See Tax Provisions for Other Organizations.

On April 26, 2012, the Department of the Treasury and IRS issued Notice 2012-31 PDF, which provides information and requested public comment on an approach to determining whether an eligible employer-sponsored health plan provides minimum value. Additionally, on April 30, 2013, the Treasury Department and the IRS issued proposed regulations PDF relating to minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit. Starting in 2014, whether such a plan provides minimum value will be relevant to eligibility for the premium tax credit and application of the employer shared responsibility payment. 

On November 4, 2014, the Department of the Treasury and IRS issued Notice 2014-69 PDF, which provides additional guidance regarding whether an employer-sponsored plan provides minimum value coverage if the plan fails to substantially cover in-patient hospitalization services or physician services.

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12, using Code DD. Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.

The amount reported does not affect tax liability, as the value of the employer excludible contribution to health coverage continues to be excludible from an employee's income, and it is not taxable. This reporting is for informational purposes only, to show employees the value of their health care benefits.
More information about the reporting can be found on Form W-2, Reporting of Employer-Sponsored Health Coverage.

See Tax Provisions for Other Organizations.

This credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees. It is specifically for employers with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees. On June 26, 2014, the Department of Treasury and the IRS issued final regulations on the credit, which include information on the requirement to purchase health insurance coverage through the Small Business Health Options Program (SHOP) Marketplace. The final regulations are applicable for taxable years beginning in or after 2014. Additionally, IRS Notice 2014-06 PDF provides transition relief for employers in certain counties in Washington and Wisconsin with no SHOP coverage available in 2014 and IRS Notice 2015-8 PDF provides similar relief for employers in certain counties in Iowa with no SHOP coverage available in 2015. For taxable years beginning in 2010 through 2013, taxpayers can rely on the guidance in the proposed regulations PDF, Notice 2010-44 PDF and Notice 2010-82 PDF. Learn more by browsing our page on the Small Business Health Care Tax Credit for Small Employers.

Pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, refund payments issued to certain small tax-exempt employers claiming the refundable portion of the Small Business Health Care Tax Credit under Internal Revenue Code Section 45R, are subject to sequestration. This means that refund payments processed on or after October1, 2015, and on or before September 30, 2016, to a Section 45R applicant will be reduced by the fiscal year 2016 sequestration rate of 6.8 percent, irrespective of when the original or amended tax return was received by the IRS. Affected taxpayers will be notified through correspondence that a portion of their requested payment was subject to the sequester reduction and the amount.  The sequestration reduction rate will be applied unless and until a law is enacted that cancels or otherwise impacts the sequester, at which time the sequestration reduction rate is subject to change. Note that the Congressional Budget Office estimates that a sequestration for fiscal year 2016 PDF will not be required.

A 10-percent excise tax on indoor UV tanning services went into effect on July 1, 2010. Payments are made along with Form 720, Quarterly Federal Excise Tax Return. The tax doesn't apply to phototherapy services performed by a licensed medical professional on his or her premises. There's also an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee. For more information on the tax and how it is administered, see the Indoor Tanning Services Tax Center.

See Tax Provisions for Other Organizations.

The Affordable Care Act created an annual fee payable beginning in 2011 by certain manufacturers and importers of brand name pharmaceuticals. On July 24, 2014, the IRS issued final PDF and temporary regulations PDF on the branded prescription drug fee. The regulations describe the rules related to the fee, including how it is computed and how it is paid. Also on July 24, 2014, the IRS issued Notice 2014-42 PDF, which provides additional guidance on the branded prescription drug fee for the 2015 fee year and subsequent fee years. For information on the fee for the 2012, 2013 and 2014 fee years, see Notice 2011-92 PDF, Notice 2012-74 PDF and Notice 2013-51 PDF. 

For additional information, visit our Affordable Care Act Provision 9008 Branded Prescription Drug Fee page.

See Tax Provisions for Individuals.

The Expatriate Health Coverage Clarification Act (EHCCA) was enacted on December 16, 2014.  Section 3(a) of the EHCCA generally provides that the Affordable Care Act (ACA) does not apply to expatriate health plans, employers with respect to expatriate health plans (but solely in the employer’s capacity as plan sponsor of the expatriate health plan), and expatriate health insurance issuers with respect to coverage offered by such issuers under expatriate health plans.  The EHCCA generally applies to expatriate health plans issued or renewed on or after July 1, 2015.  On June 30, 2015, the IRS and Treasury Department issued Notice 2015-43 PDF, which provides transition relief and interim guidance on the application of certain provisions of the ACA to expatriate health insurance issuers, expatriate health plans, and employers in their capacity as plan sponsors of expatriate health plans, as defined in EHCCA.  Notice 2015-43 does not apply to the health insurance providers fee (IPF - ACA § 9010 fee).  For purposes of the § 9010 fee, Notice 2015-29 PDF, applies to the 2014 and 2015 fee years, and future guidance will address the 2016 and later fee years.  

The Affordable Care Act establishes a number of new requirements for group health plans. Interim guidance on changes to the nondiscrimination requirements for group health plans can be found in Notice 2011-01 PDF, which provides that employers will not be subject to penalties until after additional guidance is issued. Additionally, TD 9575 PDF and REG-140038-10 PDF, issued by DOL, HHS and IRS, provide information on the summary of benefits and coverage and the uniform glossary. Notice 2012-59 PDF provides guidance to group health plans on the waiting periods they may apply before coverage starts. On June 20, 2014, HHS, DOL and IRS issued final regulations PDF on the 90-day waiting period limitation.

More information on group health plan requirements is available on the websites of the Departments of Health and Human Services and Labor and in additional guidance.

Further, Notice 2013-54 PDF provides guidance regarding the application of the Affordable Care Act’s market reforms to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. 

The Affordable Care Act created an annual fee on certain health insurance providers beginning in 2014. On Nov. 26, 2013, the Treasury Department and IRS issued final regulations on this annual fee imposed on covered entities engaged in the business of providing health insurance for United States health risks. On Aug. 12, 2014, the Treasury Department and IRS issued Notice 2014-47 PDF clarifying the scope of the term “covered entity” and the fact that reporting is not required in 2014 for an entity that would not qualify as a covered entity, even if it is a member of a controlled group that is a covered entity. On February 23, 2015, the IRS and Treasury Department issued temporary regulations PDF providing further guidance on the definition of a covered entity for the 2015 fee year and each subsequent fee year.

On March 30, 2015, the Treasury Department and IRS issued Notice 2015-29 PDF, which provides guidance on how the special rule for expatriate health plans for the 2014 and 2015 fee years under the Expatriate Health Coverage Clarification Act of 2014 applies to the annual fee on health insurance providers. This notice obsoletes Notice 2014-24, which provided a temporary safe harbor for covered entities that reported direct premiums written for expatriate plans on a Supplemental Health Care Exhibit (SHCE).

On January 29, 2016, the Treasury Department and IRS issued Notice 2016-14 PDF, which provides guidance for fee year 2016 on how the definition of expatriate health plans under the Expatriate Health Coverage Clarification Act of 2014 applies to the annual fee on health insurance providers. This notice provides that, solely for the 2016 fee year, the definition of expatriate health plan will be the same as provided in the Department of Health and Human Services MLR final rule definition. 

The Consolidated Appropriations Act of 2016, Title II, § 201, Moratorium on Annual Fee on Health Insurance Providers, suspends collection of the health insurance provider fee for the 2017 calendar year. Thus, health insurance issuers are not required to pay these fees for 2017. This moratorium does NOT affect the filing requirement and payment of these fees for 2016. Form 8963 (Rev. February 2016) must be filed by April 18, 2016.
For additional information visit our Affordable Care Act Provision 9010 - Health Insurance Providers Fee page and these questions and answers.

On March 5, 2014, the Department of the Treasury and IRS issued final regulations PDF on minimum essential coverage information reporting by providers of MEC to the IRS and each covered individual. The information reporting is to be provided by health insurance issuers, self-insured employers, government agencies and certain other parties that provide health coverage. Additionally, on July 9, 2013, the Department of the Treasury and the IRS issued Notice 2013-45 PDF announcing transition relief for 2014 from this annual information reporting. Notice 2015-68 PDF was issued on September 17, 2015, and announces that the Department of the Treasury and the IRS intend to propose regulations addressing various issues related to information reporting by providers of MEC. On July 29, 2016, the Department of Treasury and the IRS issued proposed regulations providing rules requiring issuers to report coverage under a catastrophic health plan enrolled in through the Marketplace, clarifying the circumstances under which reporting is not required for an individual covered by more than one plan or program that is minimum essential coverage, and modifying the requirements under section 6724 for establishing reasonable cause for a failure to report an individual’s taxpayer identification number.   For additional information on minimum essential coverage information reporting see our questions and answers and this fact sheet issued by the U.S. Department of the Treasury.

The 2015 Forms 1095-B PDF and 1094-B PDF and instructions that insurers will use to report on health coverage that they provide for individuals that they cover are available. 

On December 28, 2015, IRS issued Notice 2016-04 PDF, which extends the due dates for the 2015 information reporting requirements, both furnishing to individuals and filing with the Internal Revenue Service (Service), for insurers, self-insuring employers, and certain other providers of minimum essential coverage under I.R.C. § 6055, and the information reporting requirements for applicable large employers under I.R.C. § 6056.  Specifically, this Notice (1) extends the due date for furnishing the 2015 Form 1095-B, Health Coverage, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from January 31, 2016, until March 31, 2016, and (2) extends the due date for filing with the Service the 2015 Form 1094-B, Transmittal of Health Coverage Information Returns, the 2015 Form 1095-B, Health Coverage, the 2015 Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage from February 29, 2016, to May 31, 2016 if not filing electronically, and from March 31, 2016, to June 30, 2016 if filing electronically. This Notice also provides guidance to individuals who, as a result of these extensions, might not receive a Form 1095-B or Form 1095-C by the time they file their 2015 tax returns.

The Further Consolidated Appropriations Act, 2020 H.R. 1865 (Pub.L.116-94), signed into law on December 20, 2019, has repealed the medical device excise tax previously imposed by Internal Revenue Code section 4191. Prior to the repeal, the tax was on a 4-year moratorium. As a result of the repeal and the prior moratorium, sales of taxable medical devices after December 31, 2015, are not subject to the tax.

Beginning in 2011, insurance companies are required to spend a specified percentage of premium dollars on medical care and quality improvement activities, meeting a medical loss ratio (MLR) standard. Insurance companies that are not meeting the MLR standard will be required to provide rebates to their consumers beginning in 2012. For information on the federal tax consequences to an insurance company that pays a MLR rebate and an individual policyholder who receives a MLR rebate, as well as information on the federal tax consequences to employees if a MLR rebate stems from a group health insurance policy, see our frequently asked questions.

The Affordable Care Act establishes a Medicare shared savings program (MSSP) which encourages Accountable Care Organizations (ACOs) to facilitate cooperation among providers to improve the quality of care provided to Medicare beneficiaries and reduce unnecessary costs. More information can be found in Notice 2011-20 PDF, which solicited written comments regarding what additional guidance, if any, is needed for tax-exempt organizations participating in the MSSP through an ACO. This guidance also addresses the participation of tax-exempt organizations in non-MSSP activities through ACOs. Additional information on the MSSP is available on the Department of Health and Human Services website.

The Centers for Medicare and Medicaid Services has released final regulations describing the rules for the Shared Savings Program and accountable care organizations. Fact Sheet 2011-11 confirms that Notice 2011-20 continues to reflect IRS expectations regarding the Shared Savings Program and ACOs, and provides additional information for charitable organizations that may wish to participate. 

On October 24, 2014, the Department of the Treasury and the IRS issued Notice 2014-67 PDF, which describes the conditions under which a hospital or other health care facility with tax-exempt bonding authority may participate in an ACO without jeopardizing the tax-exempt status of the bonds financing that facility.

The Affordable Care Act established the Patient-Centered Outcomes Research Institute (PCORI). Funded by the Patient-Centered Outcomes Research Trust Fund, the institute will help patients, clinicians, purchasers and policymakers make better-informed healthcare choices by advancing clinical effectiveness research. The trust fund will be funded in part by fees paid by issuers of certain health insurance policies and sponsors of certain self-insured health plans.

The Further Consolidated Appropriations Act, 2020 (Pub. L. 116-94), signed into law on December 20, 2019, has extended the Patient-Centered Outcomes Research Trust Fund fee imposed by Internal Revenue Code sections 4375 and 4376 for 10 years. As a result of this extension, the Patient-Centered Outcomes Research Trust Fund fee will continue to be imposed through 2029.

The IRS and the Department of the Treasury have issued final regulations PDF on this fee.

The IRS generally posts a notice each fall to establish the applicable dollar amount for policy and plan years ending after September and concluding before October the following year. However, due to the law change in December 2019, the 2019-2020 notice was issued in the spring of 2020. Here are the notices and their applicable dates:

• Notice 2014-56 PDF after September 30, 2014, and before October 1, 2015
• Notice 2015-60 PDF after September 30, 2015, and before October 1, 2016
• Notice 2016-64 PDF after September 30, 2016, and before October 1, 2017
• Notice 2017-61 PDF after September 30, 2017 and before October 1, 2018
• Notice 2018-85 PDF after September 30, 2018 and before October 1, 2019
• Notice 2020-44 PDF after September 30, 2019 and before October 1, 2020

Additional information on the fee is available on the PCORI page and in the questions and answers and chart summary. The Form 720, Quarterly Federal Excise Tax Return, is used to report and pay the PCORI fee. Although Form 720 is a quarterly return, the PCORI fee is only filed annually on a second quarter Form 720 that is due by July 31. 

Please refer to the chart for the filing due date and applicable rate depending upon the month a specified health insurance policy or an applicable self-insured health plan ends.

Under § 139A of the Internal Revenue Code, certain special subsidy payments for retiree drug coverage made under the Social Security Act  are not included in the gross income of plan sponsors. Plan sponsors receive these retiree drug subsidy payments based on the allowable retiree costs for certain qualified retiree prescription drug plans. For taxable years beginning on or after January 1, 2013, new statutory rules affect the ability of plan sponsors to deduct costs that are reimbursed through these subsidies. See our questions and answers for more information.

The Affordable Care Act amended section 162(m) of the Code to limit the compensation deduction available to certain health insurance providers. The amendment goes into effect for taxable years beginning after December 31, 2012, but may affect deferred compensation attributable to services performed in a taxable year beginning after December 31, 2009. On September 18, 2014, the Treasury Department and IRS issued final regulations on this provision. 

The Affordable Care Act amended section 833 of the Code, which provides special rules for the taxation of Blue Cross and Blue Shield organizations and certain other organizations that provide health insurance. IRS Notice 2010-79 PDF provides transitional relief and interim guidance on the computation of an organization’s taxpayer’s Medical Loss Ratio (MLR) for purposes of section 833, the consequences of nonapplication and changes in accounting method. Notice 2011-04 PDF provides additional information and the procedures for qualifying organizations to obtain automatic consent to change its method of accounting for unearned premiums. Notice 2012-37 PDF extends the transitional relief and interim guidance provided in Notice 2010-79 for another year to any taxable year beginning in 2012 and the first taxable year beginning after December 31, 2012.

On January 6, 2014, the IRS issued final regulations that describe how the MLR for purposes of section 833 is computed. Congress subsequently passed the Consolidated and Further Continuing Appropriations Act, 2015, which was signed into law by the President on December 16, 2014, and made a technical correction to section 833(c)(5). On June 21, 2016, the IRS issued final regulations PDF incorporating the Technical Correction.

The Affordable Care Act requires the Department of Health and Human Services (HHS) to establish the Consumer Operated and Oriented Plan program (CO-OP program). It also provides for tax exemption for recipients of CO-OP program grants and loans that meet additional requirements under section 501(c)(29). IRS Notice 2011-23 PDF outlined the requirements for tax exemption under section 501(c)(29) and solicited written comments regarding these requirements as well as the application process. Rev. Proc. 2015-17 PDF, issued in conjunction with final regulations, sets forth procedures for issuing determination letters and rulings on the exempt status of organizations applying for recognition of exemption under section 501(c)(29).

An overview of the CO-OP program is available on the HHS website.

The Affordable Care Act added new requirements for charitable hospitals (see Notice 2010-39 PDF and Notice 2011-52 PDF). On June 26, 2012, the IRS published proposed regulations that provide information on the requirements for charitable hospitals relating to financial assistance and emergency medical care policies, charges for emergency or medically necessary care provided to individuals eligible for financial assistance, and billing and collections. On April 5, 2013, the IRS published proposed regulations on the requirement that charitable hospitals conduct community health needs assessments (CHNAs) and adopt implementation strategies at least once every three years. These proposed regulations also discuss the related excise tax and reporting requirements for charitable hospitals and the consequences for failure to satisfy the section 501(r) requirements. On August 15, 2013, the IRS published temporary regulations PDF and temporary regulations PDF providing information on which form to use when making an excise tax payment for failure to meet the CHNA requirements and the due date for filing the form. Notice 2014-02 PDF confirms that hospital organizations can rely on proposed regulations under section 501(r) of the Internal Revenue Code published on June 26, 2012 and April 5, 2013, pending the publication of final regulations or other applicable guidance.  On December 29, 2014, the IRS issued final regulations TD 9708 providing guidance on the requirements described in section 501(r), the entities that must meet these requirements, and the reporting obligations relating to these requirements under section 6033.  In addition, the final regulations provide guidance on the consequences for failing to satisfy the section 501(r) requirements.  The regulations apply to taxable years beginning one year after December 29, 2014, which is the date the regulations were posted for public inspection by the Federal Register.  On March 10, 2015, the IRS issued Rev. Proc. 2015-21 PDF, which finalizes, with some modifications, the correction and disclosure procedures proposed in Notice 2014-03 PDF, under which certain failures to meet the requirements of section 501(r) will be excused. On June 26, 2015, the IRS issued Notice 2015-46 PDF, which clarifies how a charitable hospital organization may comply with the requirement in the final regulations that a hospital facility include a provider list in its financial assistance policy (FAP). 

The ACA requires all health insurance issuers and self-insured group health plans to make contributions under the transitional Reinsurance Program to support payments to individual market issuers that cover high-cost individuals. For information on the tax treatment of contributions made under the Reinsurance Program, see our frequently asked questions.

Final Treasury Regulations on rules and consent requirements relating to the disclosure or use of tax return information by tax return preparers became effective Dec. 28, 2012. For additional information about how these apply to services and education related to the Affordable Care Act, please see our questions and answers.

On August 13, 2013, the Department of the Treasury and the IRS issued final regulations PDF with rules for disclosure of return information to the Department of Health and Human Services that will be used to carry out eligibility determinations for advance payments of the premium tax credit, Medicaid and other health insurance affordability programs. For additional information on the final regulations, see our questions and answers.

This program was designed to provide tax credits and grants to small firms that show significant potential to produce new and cost-saving therapies, support U.S. jobs and increase U.S. competitiveness. Applicants were required to have their research projects certified as eligible for the credit or grant. IRS guidance PDF describes the application process.

Submission of certification applications began June 21, 2010, and applications had to be postmarked no later than July 21, 2010, to be considered for the program. Applications that were postmarked by July 21, 2010, were reviewed by both the Department of Health and Human Services (HHS) and the IRS. All applicants were notified by letter dated October 29, 2010, advising whether or not the application for certification was approved. For those applications that were approved, the letter also provided the amount of the grant to be awarded or the tax credit the applicant was eligible to take.

The IRS published the names of the applicants whose projects were approved as required by law. Listings of results are available by state.

Learn more by reading the IRS news release, the news release issued by the U.S. Department of the Treasury, the page on the HHS website and our questions and answers.