FAQ: How does the suspension of the ACA medical device excise tax impact compliance?
The Affordable Care Act (ACA) imposed an excise tax on the sale of certain medical devices by the manufacturer or importer of the device. The tax is 2.3 percent. Under the ACA, the excise tax was effective for the sale of medical devices after December 31, 2012. The tax is now under a two year moratorium.
The IRS has issued rules and regulations that describe what constitutes a taxable medical device. The references are geared to language in the federal Food and Drug Act. For individuals, it is important to remember that many consumer medical devices are excluded from the tax. Expressly excluded under the ACA are eyeglasses, contact lenses and hearing aids. IRS rules and regulations also create a “retail exemption” for medical devices that are commonly purchased by consumers. These include items such as crutches, bandages, wheelchairs, and portable oxygen machines.
The manufacturer or importer is responsible for reporting and paying the tax. The IRS generally treats the manufacturer as the business that produces the medical device. An importer is the business that brings a medical device into the U.S.
In December 2015, Congress voted to temporarily suspend the excise tax. The Consolidated Appropriations Act of 2016 imposes a two year moratorium on the excise tax. As a result, the excise tax will not apply to the sale of a medical device during the period beginning on January 1, 2016, and ending on December 31, 2017.
Manufacturers and importers use Form 720 to report sales of taxable medical devices. The IRS has explained that during the moratorium, manufacturers and importers are not required to file Form 720 to report sales of taxable medical devices for quarters during 2016 and 2017. Manufacturers and importers may make adjustments to previously-reported medical device excise tax liability and/or file claims for credit or refund during the moratorium. Additionally, a manufacturer or importer may file Form 720X to claim a refund of the amount of medical device excise tax remitted to the IRS for sales of taxable medical devices during the moratorium.
Further, the IRS has explained that the moratorium has no effect on medical device excise tax liability incurred before the moratorium. Therefore audits related to such liability will continue during the moratorium.
The medical device excise tax will apply to sales of taxable medical devices made after December 31, 2017. Taxpayers will be required to report sales of taxable medical devices made during the first quarter of 2018 on Form 720 by April 30, 2018.
Please contact our office if you have any questions about the medical device excise tax.