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The Affordable Care Act, Sales Tax, and Health Insurance

  • Apr 10, 2013 | Gail Cole

 Will health insurance be subject to sales tax?

Section 9010 of the Affordable Care Act describes the “Imposition of annual fee on health insurance providers.”  This fee is being described as a tax, and by some as a sales tax, since health insurance providers are expected to pass the fee on to customers who purchase health plans.

The Internal Revenue Service includes the annual fee on its Affordable Care Act Tax Provisions page under the heading “Annual Fee on Health Insurance Providers." Section VIII of the IRS proposed regulations reads:

  • “Section 9010(f)(1) treats the fee … as an excise tax… .”
  • “Section 9010(f)(2) treats the fee as a tax … .”
  • “… [C]overed entities may attempt to recover a large portion of the fee from policyholders, either by a corresponding increase in premiums or by separately charging policyholders for a portion of the fee.”

Those fees would be treated by the IRS as income.  However, “[t]he Treasury Department and the IRS invite comments on whether the text of the regulations should be revised to clarify that recovered fee amounts are included in a covered entity’s gross income.” Written comments must be submitted by June 3, 2013.

Implicit massive sales tax increase

Forbes points out that in spite of the considerable attention health care reform is getting, “less attention is being given to the massive sales tax increase on the purchase of health insurance … implicit within the legislation that will dramatically escalate costs for employers and consumers.”

Indeed, a study prepared by the Joint Committee on Taxation for the Committee on Ways and Means details 21 new taxes that will emerge from the ACA, costing taxpayers an estimated $675 billion or more. These taxes include, but are not limited to:

The last on the above list has been called a sales tax on the purchase of health insurance. The Ways and Means Committee expects that tax will total 101.7 billion, “making it larger than all the other industry-specific taxes combined.

Impact on businesses

Whether you call it a tax or a fee, the end result will likely be the same for businesses. They will have to spend time and resources gathering extra revenue and remitting it to the government.

How does your business keep track of sales tax changes?

photo credit: 401(K) 2013 via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.