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PCORI tax and FSA

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Beginning with 2013, our employees must be at least .75 FTE to be eligible to participate in our self-funded health plan. At the same time, we have a health flexible spending arrangement that requires only a .5 FTE for eligibility. The health FSA is entirely funded through the employees' salary reduction elections. So, we have a group of employees who are eligible to participate in the FSA, but who are not eligible to participate in the health plan.

I read the section 4376 tax regulations to say that a heath FSA that is an "excepted benefit" is not an applicable self-insured plan, which would mean that for an "excepted benefit" FSA, the FSA-eligible employees (including the .5 - .74 FTE employees) would not be counted for the PCORI tax. The section 9831 tax regulations state that an FSA is an "excepted benefit" if a "class" of participants meets both of two requirements. One of the requirements is that other group health plan coverage must be offered to the "class." My question is this. Is the group of employees with FTEs from .5 - .74 a "class," if we don't identify or define them in any other way as a class for HR and employment purposes? If that group is a "class" then our FSA would be an applicable self-insured health plan and the group's lack of eligibility to participate in our self-funded health plan would require the PCORI covered lives count to include each employee in that group. Correct?


Ken Davis

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Sorry, but you lost me somewhat.

As a general rule, FSA's are not subject to the PCORI tax, so I believe you are ok without paying the tax on them. Take a look at the IRS (http://www.irs.gov/uac/Patient-Centered-Outcomes-Research-Trust-Fund-Fee:-Questions-and-Answers ) information. I believe it may be your answer.


Those Q&As are too general for a question this specific and don't give an answer. But thanks for directing me there.


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Our firm has been heavily involved in this for our clients. I believe that the FSA is not an excepted benefit in this case because of the example you cite. But remember that there is not very much guidance here.

This is an example if weighing the risk/reward in deciding whether to report or not.

William C. Presson, ERPA, QPA, QKA
C 205.994.4070


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As Bill states, there has been no guidance of which I am aware that defines what a "class " of participants. I think that you could take the approach that the ineligible 0.5 FTE employees are in a different "class" than the 0.75 FTE ones. (Even if you don't define them as "FT" and "PT" for other reasons, that is what they in effect are for medical plan eligibility purposes.) That would be an aggressive but defensible position.

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