Tax Central Alert: File Form 720 by July 31 if you offer self-insured health plans, certain FSAs or HRAs

June 6, 2018|James Derzon

Employers with self-insured health plans must pay the annual Patient-Centered Outcomes Research Fee by July 31, and the IRS set new fees for 2018.

As part of the health care reform laws passed in March 2010, if your business maintains a self-insured health plan or certain types of a flexible spending account or health reimbursement arrangement, you are required to pay a fee based on the average number of lives covered during the plan year. (As used here, “lives” would generally include employees, spouses and dependents.)

A health flexible spending arrangement will generally NOT be subject to these fees if other group health coverage is made available and its benefits are limited to twice a participant’s salary reduction election, or if greater, $500 plus the salary reduction amount (if any).

These fees will be used to fund the Patient-Centered Outcomes Research Trust Fund. They are reportable annually on Form 720, which is due by July 31 in the calendar year after the plan year-end. The fees started with plan years ending after September 30, 2012.

The fees per covered life are due on Form 720 by July 31, 2018 as follows:

  • Plans with years ended January 2017 through September 2017: $2.26 fee per covered life
  • Plans with years ended October 2017 through December 2017: $2.39 fee per covered life

There is no minimum tax threshold to file this form. In other words, even if your organization owes only a few dollars, you will need to file the form. Form 720 can be found on the IRS website; use Part II to report the fee.

Even if you have more than one kind of plan (say for example, a self-insured group health plan and a flexible spending account), you need to file only one Form 720. A participant in both plans will create only one fee. Generally, your third party administrator should be able to provide you with the information you need to prepare Form 720. There are several different ways to compute the number of covered lives.

A flexible spending account that has only employee deferrals and no employer contribution is generally NOT subject to the fee if other group health coverage is maintained. If your flexible spending account includes employer contributions, it may be subject to the fee (see the second paragraph of this article). If in the past you paid a fee for a flexible spending account funded with employee dollars only, there could be a refund opportunity available to you.

Please contact us if you have any questions.