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IRS sets health tax rules

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The Internal Revenue Service is taking a tough approach on which benefits plans and carriers will have to pay the new federal health insurance tax in 2014.

Section 9010 of the Patient Protection and Affordable Care Act requires health plans and commercial insurers to pay $8 billion in new taxes in the coming year, and more in later years, to help compensate for the new, subsidized business PPACA is supposed to send to carriers. 

The “covered entities” subject to PPACA Section 9010 will have to pay a size-based tax using Form 8963. 

The IRS said in draft regulations released in March that Section 9010 exempts accident insurance, disability insurance, long-term care insurance, Medicare supplement insurance and government agencies from the tax, but no one else.

Now, in final regulations set to appear in the Federal Register on Friday, the IRS says it will apply the Section 9010 to most of the types of entities that asked for relief from the tax in comment letters.

The tax is a cousin of the $63-per-person Section 1341 transitional reinsurance belly button tax.

The IRS says that, because of the wording in PPACA, the Section 9010 tax will apply to colleges that run their own health plans; companies that run plans for Medicaid and other government programs; any state-run high risk pools that continue to operate in 2014; dental plans; and vision plans.

If a carrier has a zombie health plan — one that’s suspended sales of new coverage but continues to provide some to meet regulatory, statutory or contractual requirements — that carriers will have to pay the tax.

The IRS says it will not make employee assistance plans pay the tax, at least for now, but may apply it to them later, if it looks as if some EAPs are providing significant health benefits.

The IRS says it is still deciding what to do about stop-loss insurance arrangements.

In related news, the IRS has released:

Notice 2013-76, which describes the procedures carriers and plans should follow when submitting their Form 8963 health insurance provider tax forms.

Revenue Ruling 2013-27, which requires carriers to include any premium revenue they use to pay the new tax in their taxable income. 

Notice 2013-45, a set of answers to questions about the IRS decision to delay enforcing employer health benefits reporting and minimum coverage requirements for at least a year.

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