Hey there! Ready to tackle IRS Form 720 for the PCORI fee? It might seem a bit daunting at first, but with this step-by-step guide, you'll navigate it like a pro. Let's get started and make sure you're compliant!
Understanding the PCORI Fee and Form 720
Before we dive into the nitty-gritty of filling out the form, let's clarify what the PCORI fee is all about. The Patient-Centered Outcomes Research Institute (PCORI) Fee is an annual fee imposed by the Affordable Care Act (ACA) on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans. This fee helps
While IRS Form 720, the Quarterly Federal Excise Tax Return, is typically used for various excise taxes on a quarterly basis, for the PCORI fee, it's filed annually, specifically for the second quarter (even if you don't typically file quarterly excise taxes). The fee is due by July 31st of the calendar year following the last day of your plan year. For example, if your plan year ended in December 2024, the PCORI fee is due by July 31, 2025. This requirement has been extended through 2029, making it an ongoing annual task.
Who needs to pay? If you're an employer with a self-insured health plan (including Health Reimbursement Arrangements (HRAs), unless certain exceptions apply), you are generally responsible for calculating and paying this fee. If you have a fully insured health plan, your insurance carrier is usually responsible, and the fee is often built into your premiums.
 |
| How To Fill Out Irs Form 720 For Pcori Fee |
Step 1: Gather Your Essential Information and Documents
Alright, before you even think about putting pen to paper (or fingers to keyboard), you need to have all your ducks in a row. This is crucial for a smooth and accurate filing process.
Tip: A slow skim is better than a rushed read.
Sub-heading: Key Information You'll Need
- Your Employer Identification Number (EIN): This is your unique nine-digit tax identification number.
- Your Business Legal Name and Mailing Address: Ensure these are accurate and up-to-date with the IRS.
- Plan Year End Date: The PCORI fee is based on your plan year, not the calendar year. Knowing your plan year end date is critical for determining the correct fee amount.
- Average Number of Lives Covered: This is the most important piece of data you'll need to calculate the fee. We'll delve into how to determine this in the next step.
- Prior Year's Form 720 (if applicable): If you've filed this form before, it can serve as a useful reference.
- Payment Method Details: Whether you're paying by check, money order, or through the Electronic Federal Tax Payment System (EFTPS), have your details ready.
Sub-heading: Where to Find Form 720 and its Instructions
Always use the most current version of Form 720 and its instructions directly from the IRS website (www.irs.gov). Don't rely on outdated forms you might have saved! Search for "IRS Form 720" to get the latest revision.
Step 2: Calculate the Average Number of Covered Lives
This is arguably the most critical and potentially complex part of the process. The IRS provides several methods for calculating the average number of lives covered under your self-insured health plan. You must apply the chosen method consistently for the entire plan year.
Sub-heading: Understanding the PCORI Fee Rates
The PCORI fee amount is adjusted annually for inflation. Here are some recent rates:
- For plan years ending on or after October 1, 2023, and before October 1, 2024: $3.22 per covered life.
- For plan years ending on or after October 1, 2024, and before October 1, 2025: $3.47 per covered life.
Always double-check the latest IRS guidance for the most current rates applicable to your plan year end date.
Sub-heading: Methods for Calculating Covered Lives for Self-Insured Plans
Choose the method that best suits your record-keeping and provides the most accurate average.
QuickTip: Skim the first line of each paragraph.
-
Actual Count Method:
- How it works: You add the total number of lives covered on each day of the plan year and then divide that total by the total number of days in the plan year.
- Example: If you had 100 lives covered for 300 days and 110 lives covered for 65 days in a 365-day plan year: . Then, (round to the nearest whole number for simplicity, or follow IRS rounding rules).
- Best for: Employers with detailed daily enrollment records.
-
Snapshot Method:
- How it works: You select one or more dates (an equal number of dates) during the first, second, or third month of each quarter of your plan year. You then sum the number of covered lives on those designated dates and divide by the total number of dates you used for the count.
- Example: If you count lives on the 15th of the first month of each quarter and have 100, 105, 110, and 102 lives on those dates, respectively: . Then, lives.
- Best for: Employers who take periodic enrollment snapshots.
-
Form 5500 Method:
- How it works: This method is generally available if you file Form 5500 for your health plan.
- If your plan offers only individual coverage (e.g., employee-only coverage), you take the number of participants reported at the beginning of the plan year and the number reported at the end of the plan year,
and divide by two. - If your plan offers coverage other than individual coverage (e.g., family coverage), you take the number of participants reported at the beginning of the plan year plus the number reported at the end of the plan year.
- If your plan offers only individual coverage (e.g., employee-only coverage), you take the number of participants reported at the beginning of the plan year and the number reported at the end of the plan year,
- Best for: Employers who already file Form 5500 and find this calculation straightforward.
- How it works: This method is generally available if you file Form 5500 for your health plan.
Sub-heading: Special Considerations for HRAs and Multiple Plans
- HRA Integrated with Fully Insured Medical Plan: If you offer an HRA integrated with a fully insured medical plan, you (the employer) pay the PCORI fee for the HRA based on the number of employees enrolled in the HRA. The insurance carrier pays for the fully insured plan.
- HRA Integrated with Self-Insured Medical Plan: If both your medical plan and HRA are self-insured and have the same plan year, you can generally treat them as a single plan for PCORI purposes, avoiding double counting. You'll pay the fee based on the total lives covered under the self-insured medical plan.
- Non-Excepted Health Care FSAs: These are also subject to the fee, and the employer is responsible for payment. Most health FSAs are "excepted benefits" and are exempt if certain conditions are met (e.g., employer contribution is $500 or less, or a dollar-for-dollar match not exceeding the employee's contribution).
- Exemptions: Stand-alone dental and vision plans, life insurance, short-term and long-term disability, accident insurance, long-term care, HSAs, Archer MSAs, stop-loss insurance, and certain government programs are generally exempt from the PCORI fee.
Step 3: Completing IRS Form 720
Now that you have your critical numbers, let's fill out the form itself.
Sub-heading: Section-by-Section Breakdown
-
Company Information Header (Page 1):
- Enter your Employer Identification Number (EIN).
- Fill in your Business Name and Address.
- For the "Quarter ending" box, always check the box for June 30, even if your plan year ends on a different date. The PCORI fee is reported on the second-quarter Form 720 annually.
- Do NOT check "Final return" unless your company is going out of business or you will no longer be required to file Form 720 in future quarters.
-
Part II – Excise Taxes on Services and Facilities (Page 2):
- This is where you'll report the PCORI fee. Look for IRS No. 133, Patient-Centered Outcomes Research Trust Fund Fee.
- Line 133(c) or 133(d):
- If your plan year ended before October 1 of the preceding calendar year, use Line 133(c). Enter the average number of covered lives in the first column and multiply it by the applicable rate for that plan year.
- If your plan year ended on or after October 1 of the preceding calendar year, use Line 133(d). Enter the average number of covered lives and multiply it by the applicable rate.
- Total: Enter the calculated PCORI fee amount in the "Tax" column for the relevant line (133c or 133d). Remember, you only need to fill out this specific line for the PCORI fee if you don't owe other excise taxes.
-
Part III – Summary of Excise Tax Liability (Page 3):
- Line 3: This line will automatically pull the total tax from your entries in Part II. Ensure the PCORI fee amount is correctly reflected here.
- Line 10: Total tax (add lines 3 through 9). This will be your total PCORI fee due.
- Important: If you have no other excise tax liabilities, your entries for Part I and other sections of Part II will be zero.
-
Part IV – Signature (Page 3):
- This is where you make it official!
- Sign and Date the form.
- Enter your Printed Name and Title.
- Provide your Daytime Phone Number.
-
Payment Voucher (Page 4):
- If you're mailing a payment, complete the Form 720-V, Payment Voucher.
- Enter your EIN, Business Name, Address, and the Amount of Payment.
- Make sure the voucher reflects the correct quarter ending date (June 30) and the total payment amount.
Step 4: Review and Submit Your Form 720
You're almost there! A thorough review can save you from potential headaches and penalties.
Sub-heading: Double-Checking Your Work
- Accuracy is Key: Re-verify all your numbers, especially the average number of covered lives and the calculated fee.
- Correct Rate: Confirm you've used the correct PCORI fee rate for your plan year end date.
- All Fields Completed: Ensure all required fields in the header, Part II (PCORI fee section), Part III, and Part IV are filled out.
- Signature: Did you remember to sign and date the form? This is a common oversight!
- Payment: If you're sending a check, ensure it's made out correctly to the "United States Treasury" and matches the amount on Form 720-V.
Sub-heading: Filing Your Form 720
You have a couple of options for submitting your Form 720:
-
Mail:
- Attach your check or money order to the Form 720-V.
- Mail the completed Form 720 and payment voucher to the IRS address specified in the Form 720 instructions. For PCORI fees, the address is typically: Department of the Treasury Internal Revenue Service Ogden, UT 84201-0009
- Consider sending it via certified mail with a return receipt requested for proof of mailing.
-
E-File:
- You can e-file Form 720 through an IRS-approved e-file provider. This can be more convenient and generally faster with fewer errors. Many payroll or benefits administration platforms offer this service.
Remember: The deadline for filing Form 720 and paying the PCORI fee is July 31st of the year following the last day of your plan year. If July 31st falls on a weekend or federal holiday, the deadline is typically the next business day.
Related FAQ Questions
How to calculate PCORI fee for a short plan year?
If you have a short plan year (e.g., due to a change in plan year), the PCORI fee amount is prorated based on the number of months in the short plan year. You would calculate the average covered lives for that shorter period and apply the rate. Refer to IRS guidance for specific short plan year calculations.
Tip: Make mental notes as you go.
How to amend a previously filed Form 720 for PCORI fee errors?
If you discover an error on a previously filed Form 720 for the PCORI fee, you should file Form 720X, Amended Quarterly Federal Excise Tax Return, to make corrections.
How to pay the PCORI fee if I don't normally file Form 720?
If you only owe the PCORI fee and don't typically file Form 720 for other excise taxes, you still only file Form 720 once a year for the second quarter (ending June 30th) by July 31st. You do not need to file it for the other quarters.
How to determine if my HRA is exempt from the PCORI fee?
Generally, if your HRA is considered an "excepted benefit," it's exempt. This usually applies if the HRA is offered alongside a traditional group health plan, has a benefit cap under the federal limit, and reimburses only non-essential health benefits (like dental or vision). Most Health FSAs also qualify as excepted benefits if employee salary reductions are the primary funding source or employer contributions are minimal (e.g., $500 or less).
How to avoid penalties for late PCORI fee filing?
The best way to avoid penalties is to file Form 720 and pay the PCORI fee by the July 31st deadline. Penalties for late filing can be 5% of the unpaid tax for each month or part of a month, up to 25% of the unpaid tax. Late payment penalties are 0.5% of the unpaid tax per month, up to 25%. Interest can also be charged.
How to count covered lives for PCORI if employees are outside the U.S.?
Employees and their dependents residing outside the U.S. (based on the address on file with the employer) may be excluded from the count of covered lives for PCORI fee purposes.
QuickTip: Revisit key lines for better recall.
How to confirm the correct PCORI fee rate for my plan year?
Always refer to the latest IRS notices and instructions for Form 720 on the IRS website (irs.gov). They publish the applicable rates for different plan year end dates annually.
How to treat multiple self-funded plans for PCORI fee calculation?
If an employer maintains multiple self-funded health plans with the same plan year, a special rule allows them to treat these plans as a single plan for PCORI fee calculation purposes, ensuring individuals are not counted more than once.
How to file Form 720 electronically for the PCORI fee?
You can e-file Form 720 through IRS-approved software providers or tax professionals. This usually involves generating the form and submitting it electronically, often integrating with your payroll or HR systems.
How to get help if I'm unsure about my PCORI fee obligations?
If you're uncertain about your PCORI fee obligations, how to calculate the fee, or how to fill out Form 720, it's highly recommended to consult with a qualified tax advisor, benefits consultant, or legal counsel experienced in employee benefits and tax compliance.
 |
