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A new federal law enacted last year provides a tax benefit to employees who receive overtime pay – but calling it a “No Tax on Overtime” law is a bit of misnomer. For starters, OT pay remains taxable and subject to withholding rules. And while a new income tax deduction may be available to some employees who work overtime, only a limited portion of federally required overtime compensation is tax deductible. We’ll clear up some of the biggest misconceptions surrounding these new rules and provide some key employer takeaways – which will become especially important this tax season and beyond as more employees learn the realities of these rules and the IRS cracks down on employers’ new filing and information reporting obligations.
Overview of “No Tax on Overtime”
The One Big Beautiful Bill Act (OBBBA), which President Trump signed into law last year, includes a new federal income tax deduction related to overtime pay. This new deduction:
The deduction is allowed for both itemizers and non-itemizers, so long as the individual includes their social security number on their tax return. If an individual is married, they must file a joint return in order to claim this deduction.
The Big Question: What Does “Qualified Overtime Compensation” Mean?
The law defines “qualified overtime compensation” as “overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act” (FLSA) that exceeds the individual’s “regular rate” (as determined by the FLSA), excluding qualified tips. This language expressly conditions an employee’s right to claim the federal tax benefit on federal labor law requirements, specifically excluding overtime compensation mandated solely by state law.
Is “No Tax on Overtime” a Misnomer? Top 3 Misconceptions and Employer Challenges
There are plenty of misconceptions floating around related to the implications of the Big Beautiful Bill, especially related to the “No Tax on Overtime” provisions. In order to separate myth from reality, here are three key clarifications on the top mistaken beliefs.
1. The new tax deduction is only available for overtime pay required by the FLSA.
The FLSA generally requires employers to pay covered, nonexempt employees at least 1.5 times their “regular rate” of pay for all hours worked beyond 40 hours in a given workweek. This is very important to keep in mind because some states have overtime laws that overlap with, but also go beyond, the requirements of the FLSA. For example:
Therefore, if an employee receives overtime pay that is required by state, but not federal, law, such amounts are not “qualified overtime compensation” under the OBBBA, and no portion is deductible by the employee for federal income tax purposes.
2. The deductible amount may be less than you think.
As explained above, the new deduction related to overtime pay is capped at $12,500 ($25,000 for joint filers) and is reduced or phased out completely based on an individual’s MAGI for the year. In addition, the amount that is deductible is not the full amount of the individual’s FLSA-required overtime compensation – rather, it is the portion that exceeds the individual’s “regular rate” of pay as determined under federal law.
Here’s an example:
3. All overtime pay remains subject to payroll taxes and withholding rules.
The phrase “No Tax on Overtime” is misleading because it doesn’t actually mean that overtime pay is no longer taxable. To the contrary, all OT pay remains subject to federal income tax (though, as explained above, employees may be eligible to claim a limited income tax deduction for qualified overtime compensation) and therefore subject to income tax withholding rules. However, employees may opt to adjust their Forms W-4 to reflect any expected deductions for qualified overtime compensation.
In addition, all overtime compensation remains fully subject to other payroll taxes, such as Social Security and Medicare taxes (both the employer’s share and the employee’s share), because the OBBBA’s new tax deduction applies only for federal income tax purposes.
Why Should Employers Care About Any of This?
While the OBBBA’s new overtime deduction is a tax benefit for employees filing individual tax returns, it impacts employers in several important ways.
Conclusion
Overtime pay remains taxable – though some employees may be allowed to claim a portion of it as a federal income tax deduction. Employers should work with counsel on filing, reporting, and withholding issues, as well as employee communications, related to qualified overtime compensation.
Article courtesy of Fisher Phillips
As employers prepare for the next Affordable Care Act (ACA) reporting cycle, understanding the 2026 deadlines and new compliance options is critical. The IRS has finalized the reporting forms and instructions for the 2025 calendar year, along with updates that simplify the process for Applicable Large Employers (ALEs).
Here’s what employers need to know.
Applicable Large Employers (ALEs) must meet the following ACA reporting deadlines for the 2025 calendar year:
Non-ALEs that sponsor self-insured or level-funded plans face the same deadlines when submitting Forms 1094-B and 1095-B.
Under the ACA, employers are required to report information about health coverage offered to employees:
Reporting is completed through IRS Forms 1094-C and 1095-C (for ALEs) or 1094-B and 1095-B (for non-ALE self-insured plans).
Thanks to the Paperwork Burden Reduction Act (PBRA), ALEs now have a new way to fulfill their reporting obligations without furnishing a Form 1095-C to every full-time employee.
Instead, employers can:
The online notice must:
Example:
A “Tax Information” link on a benefits website leading to a page labeled “IMPORTANT HEALTH COVERAGE TAX DOCUMENTS” with instructions for obtaining the form.
This streamlined furnishing method mirrors an existing option for insurance carriers and non-ALEs reporting via Form 1095-B.
Starting with the 2025 reporting year, the IRS now requires electronic filing for virtually all ACA reports.
Previously, employers filing fewer than 250 forms could submit on paper—but that’s no longer an option.
Under the new aggregation rule, employers that file 10 or more total information returns (including Forms W-2, 1099, and ACA forms) must file electronically through the IRS Affordable Care Act Information Returns (AIR) system.
Because the AIR system requires a specific XML schema format, most employers will need to work with an ACA reporting vendor—such as a payroll provider, benefits administration platform, or specialized ACA reporting service.
Failure to comply with ACA reporting requirements can be costly.
For forms due in 2026, the IRS penalties are as follows:
| Violation | Penalty per Form | Maximum Annual Penalty |
|---|---|---|
| Late or Incorrect Filing or Furnishing | $340 | $4,098,500 |
| Intentional Disregard | $680 per form (no max) | — |
Employers may also qualify for “reasonable cause” relief if they can demonstrate responsible efforts to comply and mitigating circumstances beyond their control (see Treas. Reg. §301.6724-1 and IRS Publication 1586).
To prepare for 2026 ACA reporting:
For 2026, ACA reporting brings both greater convenience and stricter electronic filing rules.
Employers should take advantage of the new online furnishing option while ensuring they’re ready to meet the March deadlines and avoid compliance penalties.
The Patient-Centered Outcomes Research Institute (PCORI) fee established by the Affordable Care Act helps fund research to evaluate and compare health outcomes, clinical effectiveness, risks, and benefits of medical treatment and services. The fee, which is adjusted annually, is currently in place through 2029. In Internal Revenue Bulletin 2025-45, the IRS announced that the PCORI fee for plan years ending between October 1, 2025, and September 30, 2026, is $3.84. As has been the case in previous years, this new fee is an increase from the $3.47 payment for policy or plan years that ended between October 1, 2024, and September 30, 2025.
Employers and plan sponsors with self-funded plans are typically responsible for submitting IRS Form 720 and paying the PCORI fee by July 31 of the calendar year immediately following the last day of the plan year, meaning that payments for plan years that end in 2025 will be due in July of 2026. PCORI fees for self-funded plans are assessed on all covered lives, not just on employees. Plan sponsors can use one of three methods to calculate the average number of covered lives for the fee: the actual count method, the snapshot method, and the Form 5500 method.
Many fully insured employers do not need to take any action, as the insurer will submit the payment on their behalf. However, remember that fully insured employers with self-funded HRAs must pay the fee for each employee covered under the account.
Earlier this month, the IRS issued Rev. Proc. 2025-32, which announces the 2026 indexed limits for certain health and welfare benefits. This is in addition to the limits the IRS announced in Rev. Proc. 2025-19 on May 1, 2025.
| 2025 | 2026 | |
|---|---|---|
| HSA Contributions | $4,300 for self-only coverage $8,550 for family coverage | $4,400 for self-only coverage $8,750 for family coverage |
| HSA-Compatible HDHP Deductible | $1,650 for self-only coverage $3,300 for family coverage | $1,700 for self-only coverage $3,400 for family coverage |
| HSA-Compatible HDHP Out-of-Pocket Maximum | $8,300 for self-only coverage $16,000 for family coverage | $8,500 for self-only coverage $17,000 for family coverage |
| Health FSA Salary Reductions | $3,300 | $3,400 |
| Health FSA Carryover | $660 | $680 |
Don’t Forget! An “old faithful” reporting requirement deadline is right around the corner: the Patient-Centered Outcomes Research Institute (PCORI) filing and fee. The Affordable Care Act imposes this annual per-enrollee fee on insurers and sponsors of self-funded medical plans to fund research into the comparative effectiveness of various medical treatment options.
The due date for the filing and payment of PCORI fee is July 31 for required policy and plan years that ended during the 2024 calendar year. For plan years that ended Jan. 1, 2024 – Sept. 30, 2024, the fee is $3.22 per covered life. For plan years that ended Oct. 1, 2024 – Dec. 31, 2024 (including calendar year plans that ended Dec. 31, 2024), the fee is calculated at $3.47 per covered life.
Insurers report on and pay the fee for fully insured group medical plans. For self-funded plans, the employer or plan sponsor submits the fee and accompanying paperwork to the IRS. Third-party reporting and payment of the fee (for example, by the self-insured plan sponsor’s third-party claim payor) is not permitted.
An employer that sponsors a self-insured health reimbursement arrangement (HRA) along with a fully insured medical plan must pay PCORI fees based on the number of employees (dependents are not included in this count) participating in the HRA, while the insurer pays the PCORI fee on the individuals (including dependents) covered under the insured plan. Where an employer maintains an HRA along with a self-funded medical plan and both have the same plan year, the employer pays a single PCORI fee based on the number of covered lives in the self-funded medical plan and the HRA is disregarded.
The IRS collects the fee from the insurer or, in the case of self-funded plans, the plan sponsor in the same way many other excise taxes are collected. Although the PCORI fee is paid annually, it is reported (and paid) with the Form 720 filing for the second calendar quarter (the quarter ending June 30). Again, the filing and payment is due by July 31 of the year following the last day of the plan year to which the payment relates (i.e. filling for the 2024 PCORI fee is due by July 31, 2025)
IRS regulations provide three options for determining the average number of covered lives: actual count, snapshot and Form 5500 method.
Actual count: The average daily number of covered lives during the plan year. The plan sponsor takes the sum of covered lives on each day of the plan year and divides the number by the days in the plan year.
Snapshot: The sum of the number of covered lives on a single day (or multiple days, at the plan sponsor’s election) within each quarter of the plan year, divided by the number of snapshot days for the year. Here, the sponsor may calculate the actual number of covered lives, or it may take the sum of (i) individuals with self-only coverage, and (ii) the number of enrollees with coverage other than self-only (employee-plus one, employee-plus family, etc.), and multiply by 2.35. Further, final rules allow the dates used in the second, third and fourth calendar quarters to fall within three days of the date used for the first quarter (in order to account for weekends and holidays). The 30th and 31st days of the month are both treated as the last day of the month when determining the corresponding snapshot day in a month that has fewer than 31 days.
Form 5500: If the plan offers family coverage, the sponsor simply reports and pays the fee on the sum of the participants as of the first and last days of the year (recall that dependents are not reflected in the participant count on the Form 5500). There is no averaging. In short, the sponsor is multiplying its participant count by two, to roughly account for covered dependents.
The U.S. Department of Labor says the PCORI fee cannot be paid from ERISA plan assets, except in the case of union-affiliated multiemployer plans. In other words, the PCORI fee must be paid by the plan sponsor; it cannot be paid in whole or part by participant contributions or from a trust holding ERISA plan assets. The PCORI expense should not be included in the plan’s cost when computing the plan’s COBRA premium. The IRS has indicated the fee is, however, a tax-deductible business expense for sponsors of self-funded plans.
Although the DOL’s position relates to ERISA plans, please note the PCORI fee applies to non-ERISA plans as well and to plans to which the ACA’s market reform rules don’t apply, like retiree-only plans.
The filing and remittance process to the IRS is straightforward and unchanged from last year. On Page 2 of Form 720, under Part II, the employer designates the average number of covered lives under its “applicable self-insured plan.” As described above, the number of covered lives is multiplied by the applicable per-covered-life rate (depending on when in 2024 the plan year ended) to determine the total fee owed to the IRS.
The Payment Voucher (720-V) should indicate the tax period for the fee is “2nd Quarter.”
Failure to properly designate “2nd Quarter” on the voucher will result in the IRS’ software generating a tardy filing notice, with all the incumbent aggravation on the employer to correct the matter with IRS.
Full instructions for Form 720 can be found here.
An employer that overlooks reporting and payment of the PCORI fee by its due date should immediately, upon realizing the oversight, file Form 720 and pay the fee (or file a corrected Form 720 to report and pay the fee, if the employer timely filed the form for other reasons but neglected to report and pay the PCORI fee). Remember to use the Form 720 for the appropriate tax year to ensure that the appropriate fee per covered life is noted.
The IRS might levy interest and penalties for a late filing and payment, but it has the authority to waive penalties for good cause. The IRS’s penalties for failure to file or pay are described here.
The IRS has specifically audited employers for PCORI fee payment and filing obligations. Be sure, if you are filing with respect to a self-funded program, to retain documentation establishing how you determined the amount payable and how you calculated the participant count for the applicable plan year.
Two bills—the Employer Reporting Improvement Act and the Paperwork Burden Reduction Act—were signed into law on December 23, 2024. These two Acts change the requirements for distributing IRS Forms 1095-B and 1095-C to all employees and covered individuals.
Background
Under the ACA, all employers (or health insurers for fully insured plans) were required to report information about any health coverage offered to their employees via Forms 1095-B or 1095-C. These paper forms are also required to be filed with the IRS, covered by the IRS Form 1094-B or 1094-C.
Based upon data from the ACA’s Exchange/Marketplace and these Form 1095s, the IRS would determine if any Employer Shared Responsibility Payments (not-so-affectionately known as the “penalties”) were due and send the employer a letter (IRS 226J letter) asking for any clarification before the proposed penalties were assessed. Employers only had 30 days from the date of the letter to respond, in many cases noting a coding error on the Form 1095. Since the IRS used the US mail, often the employer had very few days to research the reason for the proposed penalty and to respond accordingly. If the response from the employer was late, the IRS could not only assess the proposed penalty, but additional penalties as well.
Further, the period for assessing and collecting the penalties had no statute of limitations which would otherwise potentially limit the liability for older assessments.
Changes Under the Two Acts
The two Acts will make several important changes that will improve the reporting and enforcement process for plan sponsors.
Forms 1095-B and 1095-C. Plan sponsors and health insurance providers for fully insured plans are no longer required to send these forms to all eligible (full-time) employees and covered individuals. Instead, only if an employee requests a form must one be provided by the later of January 31st of the year following the coverage year or 30 days after the date of the request. However, note that in order to take advantage of this new rule, plan sponsors must provide a notice to employees letting them know they have the right to ask for a 1095 form. There is no model notice yet, but employers can likely make a good-faith effort to draft such a notice.
Electronic Distribution of Requested Form. If the employee has previously given their consent to receive the form electronically (and as long as they haven’t revoked that consent), the 1095 can be provided electronically. While we don’t yet have guidance on this new provision, a good-faith effort—such as including a consent to receive the Form electronically on the request form—may suffice.
Extension of Response Time to Penalty Letters. Plan sponsors will now have 90 days, not 30, to respond to a proposed penalty assessment letter from the IRS before any further action is taken. Given our history assisting employers with responding to these IRS 226J letters, most often the proposed penalty was due to a coding error or missed employee on the 1095, not a failure to offer affordable minimum essential coverage. The change will allow employers reasonable time to research the issue and respond to the IRS in a timely manner.
Statute of Limitations on Penalty Assessments. Instead of an open-ended period to assess penalties, there is now a six year period for collecting any penalties from employers, starting from the later of the due date for the 1095 Forms or the actual filing date, whichever is later.
Important Note. The 1095-B or 1095-C must still be prepared and remitted to the IRS with the corresponding Form 1094. These two Acts only change the distribution requirements to employees and covered individuals in group health plans.
Effective Date. The effective date of the Paperwork Burden Reduction Act is for all calendar years after 2023. The effective date for the Employer Reporting Improvement Act is for returns due after December 31, 2024. Thus, most employers will be relieved of the IRS Form 1095-B and 1095-C requirements for distribution to employees for returns that are due January 31, 2025 for the 2024 year.
The Internal Revenue Service (IRS) announced the indexed dollar amount for the Patient Centered Outcomes Research Institute (PCORI) fee. For plan years that end on or after October 1, 2024 and before October 1, 2025, the fee is $3.47 per covered life. Issuers of specific health insurance policies and plan sponsors of applicable self-insured health plans are required to pay the PCORI fee.
Self-Insured Plans Subject to the Fee
The PCORI fee applies to self-insured plans providing accident and health coverage, including retiree-only plans. State and local governments sponsoring self-insured plans are also subject to the fee. The PCORI fee does not apply to self-insured plans that provide: 1) only excepted benefits (e.g., limited scope dental); 2) expatriate plans; 3) employee assistance programs; 4) disease specific management programs; or 5)wellness programs that do not provide significant medical treatment benefits.
PCORI fees may also apply to health reimbursement arrangements (HRAs) and health flexible spending accounts (health FSAs) that are considered self-insured health plans; however, these plans are subject to special rules. Archer Medical Savings Accounts and Health Savings Accounts (HSAs) are exempt from the fee.
Calculating and Paying the PCORI Fee Amount
Sponsors of self-insured plans must make annual PCORI payments by July 31 of the calendar year immediately following the last day of the applicable plan year. The PCORI fee is based on the average number of covered lives during the plan year.
Plan sponsors and insurers use IRS Form 720 for the second quarter to report the amount of their PCORI fee. Payments may be made through the IRS Electronic Federal Tax Payment System (EFTPS). For the most recent versions of Form 720 and associated instructions, please see the IRS Form 720 site.
Both the IRS and the three agencies tasked with issuing rules under the Affordable Care Act (“ACA”) have released guidance on new items considered preventive and medical care, as well as some further requirements around existing items plans are required to cover. Some of the guidance related to high deductible health plans (“HDHPs”) is effective retroactively presumably because some HDHPs may have already covered those items believing them to be preventive care.
Additional Medical and Preventive Care
In IRS Notice 2024-71, the IRS created a safe harbor stating that male condoms will be considered medical care for tax purposes. Among other results, this means that health plans, health flexible spending arrangements (“Health FSAs”), health reimbursement arrangements (“HRAs”), and health savings accounts (“HSAs”) can pay for or reimburse the cost of male condoms on a tax-free basis. The notice doesn’t specify an effective date, but presumably it is effective immediately.
However, for them to be preventive care for purposes of high deductible health plans and HSA purposes, separate guidance is required. As a reminder, for an individual to contribute to an HSA, they must be covered by a HDHP and not be covered by other non-permitted health insurance. Therefore, even though the IRS has now said that male condoms are medical care, they cannot be covered before the deductible under an HDHP without additional guidance.
Fortunately, the IRS also issued Notice 2024-75. It includes that needed guidance and some other items as well. Specifically, HDHPs can now cover the following items as preventive care before the individual satisfies the deductible:
The retroactive dates were presumably intended to address concerns that plans had already covered some of these items. However, to be clear, HDHPs are not required to cover these items pre-deductible, but this guidance allows them to do so without affecting a participant’s ability to contribute to an HSA.
FAQs part 68
In addition, the Departments of Health and Human Services, Labor, and Treasury issued guidance on some existing items plans are required to cover in their sixty-eighth edition of ACA FAQs.
For plans subject to the Women’s Health and Cancer Rights Act (“WHCRA”), the FAQs clarify that plans are required to cover chest wall reconstruction with an aesthetic flat closure, if elected by the patient in consultation with the attending physician. Under WHCRA, plans are generally required to cover reconstruction of the breast on which a mastectomy was performed, and surgery and reconstruction of the other breast to produce a symmetrical appearance. The guidance now confirms that this requirement includes providing an aesthetic flat closure, where extra tissues in the breast area are removed, and the remaining tissue is tightened and smoothed out to create a flat chest wall. Most plans are subject to WHCRA, including governmental plans, unless they are self-funded and have opted out. Church plans that have elected not to be subject to ERISA are not subject to WHCRA.
The FAQs address some common coding practices for items that are deemed to be medical care. The specifics and nuances of this guidance are more relevant to carriers or third party administrators (“TPAs”). However, in general, if an item is coded as preventive, it should be treated as such unless there’s additional information in the claim that would lead the plan or carrier to believe it should not be treated as preventive. If an item or service is not covered as preventive when it should be, participants and beneficiaries have the right to appeal under the relevant plan claims procedures.
Takeaways
Employers should work with their insurance carriers and TPAs to determine whether and how they plan to cover the additional permitted items for health FSAs, HRAs, and HDHPs. They should also address the coverage of the additional mandatory items from the FAQ guidance. Changes to plan documents, summary plan descriptions, or other communications may be required.
Don’t Forget! An “old faithful” reporting requirement deadline is right around the corner: the Patient-Centered Outcomes Research Institute (PCORI) filing and fee. The Affordable Care Act imposes this annual per-enrollee fee on insurers and sponsors of self-funded medical plans to fund research into the comparative effectiveness of various medical treatment options.
The due date for the filing and payment of PCORI fee is July 31 for required policy and plan years that ended during the 2023 calendar year. For plan years that ended Jan. 1, 2023 – Sept. 30, 2023, the fee is $3.00 per covered life. For plan years that ended Oct. 1, 2023 – Dec. 31, 2023 (including calendar year plans that ended Dec. 31, 2023), the fee is calculated at $3.22 per covered life.
Insurers report on and pay the fee for fully insured group medical plans. For self-funded plans, the employer or plan sponsor submits the fee and accompanying paperwork to the IRS. Third-party reporting and payment of the fee (for example, by the self-insured plan sponsor’s third-party claim payor) is not permitted.
An employer that sponsors a self-insured health reimbursement arrangement (HRA) along with a fully insured medical plan must pay PCORI fees based on the number of employees (dependents are not included in this count) participating in the HRA, while the insurer pays the PCORI fee on the individuals (including dependents) covered under the insured plan. Where an employer maintains an HRA along with a self-funded medical plan and both have the same plan year, the employer pays a single PCORI fee based on the number of covered lives in the self-funded medical plan and the HRA is disregarded.
The IRS collects the fee from the insurer or, in the case of self-funded plans, the plan sponsor in the same way many other excise taxes are collected. Although the PCORI fee is paid annually, it is reported (and paid) with the Form 720 filing for the second calendar quarter (the quarter ending June 30). Again, the filing and payment is due by July 31 of the year following the last day of the plan year to which the payment relates (i.e. filling for the 2023 PCORI fee is due by July 31, 2024)
IRS regulations provide three options for determining the average number of covered lives: actual count, snapshot and Form 5500 method.
Actual count: The average daily number of covered lives during the plan year. The plan sponsor takes the sum of covered lives on each day of the plan year and divides the number by the days in the plan year.
Snapshot: The sum of the number of covered lives on a single day (or multiple days, at the plan sponsor’s election) within each quarter of the plan year, divided by the number of snapshot days for the year. Here, the sponsor may calculate the actual number of covered lives, or it may take the sum of (i) individuals with self-only coverage, and (ii) the number of enrollees with coverage other than self-only (employee-plus one, employee-plus family, etc.), and multiply by 2.35. Further, final rules allow the dates used in the second, third and fourth calendar quarters to fall within three days of the date used for the first quarter (in order to account for weekends and holidays). The 30th and 31st days of the month are both treated as the last day of the month when determining the corresponding snapshot day in a month that has fewer than 31 days.
Form 5500: If the plan offers family coverage, the sponsor simply reports and pays the fee on the sum of the participants as of the first and last days of the year (recall that dependents are not reflected in the participant count on the Form 5500). There is no averaging. In short, the sponsor is multiplying its participant count by two, to roughly account for covered dependents.
The U.S. Department of Labor says the PCORI fee cannot be paid from ERISA plan assets, except in the case of union-affiliated multiemployer plans. In other words, the PCORI fee must be paid by the plan sponsor; it cannot be paid in whole or part by participant contributions or from a trust holding ERISA plan assets. The PCORI expense should not be included in the plan’s cost when computing the plan’s COBRA premium. The IRS has indicated the fee is, however, a tax-deductible business expense for sponsors of self-funded plans.
Although the DOL’s position relates to ERISA plans, please note the PCORI fee applies to non-ERISA plans as well and to plans to which the ACA’s market reform rules don’t apply, like retiree-only plans.
The filing and remittance process to the IRS is straightforward and unchanged from last year. On Page 2 of Form 720, under Part II, the employer designates the average number of covered lives under its “applicable self-insured plan.” As described above, the number of covered lives is multiplied by the applicable per-covered-life rate (depending on when in 2023 the plan year ended) to determine the total fee owed to the IRS.
The Payment Voucher (720-V) should indicate the tax period for the fee is “2nd Quarter.”
Failure to properly designate “2nd Quarter” on the voucher will result in the IRS’ software generating a tardy filing notice, with all the incumbent aggravation on the employer to correct the matter with IRS.
An employer that overlooks reporting and payment of the PCORI fee by its due date should immediately, upon realizing the oversight, file Form 720 and pay the fee (or file a corrected Form 720 to report and pay the fee, if the employer timely filed the form for other reasons but neglected to report and pay the PCORI fee). Remember to use the Form 720 for the appropriate tax year to ensure that the appropriate fee per covered life is noted.
The IRS might levy interest and penalties for a late filing and payment, but it has the authority to waive penalties for good cause. The IRS’s penalties for failure to file or pay are described here.
The IRS has specifically audited employers for PCORI fee payment and filing obligations. Be sure, if you are filing with respect to a self-funded program, to retain documentation establishing how you determined the amount payable and how you calculated the participant count for the applicable plan year.
On February 12, 2024, the IRS released Rev. Proc. 2024-14 to provide the adjusted excise tax amounts under the Affordable Care Act’s Employer Shared Responsibility provisions (also known as the ACA Pay or Play Penalty) for 2025.
For background, employers with more than 50 full-time employees (including full-time equivalent employees) are subject to the ACA Pay or Play Penalty under Section 4980H of the Internal Revenue Code (the “Code”). Employers subject to ACA Pay or Play may be liable for a penalty if they do not offer minimum essential coverage to a sufficient number of full-time employees, or if minimum essential coverage is offered to the required number of full-time employees, but that coverage is not affordable.
2025 Adjusted Penalty Amounts