IRS PCORI Fee: How to Calculate and Pay the Fee
Understand your plan's PCORI fee obligations. Our guide provides clarity on the IRS requirements to help plan sponsors ensure accurate compliance.
The Patient-Centered Outcomes Research Institute (PCORI) fee is a provision of the Affordable Care Act (ACA) that funds research comparing the effectiveness of medical treatments. The fee has been extended by Congress and applies to plan and policy years ending before October 1, 2029. Funds collected from the fee are directed to a trust fund that supports the institute’s work.
Determining if the Fee Applies to Your Plan
Responsibility for paying the PCORI fee depends on the type of health plan offered. For fully insured health plans, the insurance carrier is responsible for remitting the fee to the IRS. For self-insured or self-funded health plans, the responsibility falls on the plan sponsor, which is the employer. While a third-party administrator (TPA) can assist with calculating the fee, the plan sponsor is ultimately responsible for filing Form 720 and paying the fee.
Certain types of health coverage are subject to the fee, including major medical plans and most Health Reimbursement Arrangements (HRAs). If an employer sponsors multiple self-insured arrangements with the same plan year, they are treated as a single plan for the purpose of the fee. This prevents duplicate counting and simplifies the payment obligation for the plan sponsor.
Some plans and arrangements are exempt from the PCORI fee. These include standalone dental and vision plans that qualify as excepted benefits. Health Savings Accounts (HSAs) are not subject to the fee because they are individual accounts, not group health plans. A health Flexible Spending Arrangement (FSA) is also exempt if it qualifies as an excepted benefit, which is the case when employees are offered major medical coverage and the employer’s contribution to the FSA does not exceed $500.
Calculating the PCORI Fee
To calculate the PCORI fee, a plan sponsor must determine the average number of covered lives for the plan year and multiply that number by the applicable fee rate. The rate is adjusted annually based on when the plan year ended. For plan years ending on or after October 1, 2023, and before October 1, 2024, the rate is $3.22 per covered life. For plan years ending on or after October 1, 2024, and before October 1, 2025, the rate is $3.47 per covered life.
The IRS provides three methods to determine the average number of lives covered. The first is the Actual Count Method, where the sponsor counts the total number of lives covered for each day of the plan year and divides that total by the number of days in the plan year. This method requires meticulous daily record-keeping but provides a precise count.
A second option is the Snapshot Method. Using this approach, the plan sponsor counts the number of covered lives on a specific date in each quarter of the plan year, and the total is divided by four to get the average. A variation, the snapshot-factor method, involves counting employees with self-only coverage and those with other-than-self-only coverage on the snapshot dates, multiplying the latter by 2.35, and then averaging the quarterly totals.
The third option is the Form 5500 Method, which allows a plan sponsor to use the participant counts reported on Form 5500. For plans with only self-only coverage, the average number of lives is the total participants at the beginning and end of the plan year, divided by two. For plans that also offer other tiers of coverage, the number of lives is the sum of the total participants at the beginning and end of the plan year.
Reporting and Paying the Fee
The PCORI fee is reported and paid annually using IRS Form 720, the Quarterly Federal Excise Tax Return. The form must be filed for the second quarter, with a deadline of July 31 of the year following the end of the plan year.
When completing the form, the fee information is entered in Part II to determine the total fee due. Even if a plan sponsor has no other excise taxes to report, they are still required to file Form 720 for this fee.
Payment can be made through various methods, including the Electronic Federal Tax Payment System (EFTPS), and should be applied to the second calendar quarter. Failure to file or pay on time can result in penalties, which include a percentage of the unpaid tax plus interest.