Updated: Jul 4
The PCORI fee must be reported each year on IRS Form 720 for the second quarter of the calendar year and can be paid electronically or mailed to the IRS using the Form 720-V payment voucher. Employers that are subject to PCORI fees but no other types of excise taxes should file Form 720 only for the second quarter under Part II. In other words, no filings are needed for the other quarters, only the second quarter.
Which Plans Must Pay the PCORI Fee?
For fully-insured plans, the carrier is responsible for filing and paying the fee. Self-insured plans are responsible for filing. Self-insured plans also include HRAs and ICHRAs.
However, a stand-alone dental or vision HRA or a health FSA is excepted and wouldn’t be subject to the PCORI fee.
What are the fees?
For plan years that ended in 2022 but before October 1, 2022, the fee is $2.79 multiplied by the average number of lives covered under the plan (using one of the approved calculation methods). For plan years that ended between October 1, 2022, and October 1, 2023, the fee is $3.00 multiplied by the average number of lives covered under the plan.
Here’s a list to help illustrate the fee based on plan year:
Plan Years ending in 2022: Fee Owed as of July 31, 2023
Feb 2021 – Jan 2022 $2.79
Mar 2021 – Feb 2022 $2.79
Apr 2021 – Mar 2022 $2.79
May 2021 – Apr 2022 $2.79
Jun 2021 – May 2022 $2.79
July 2021 – Jun 2022 $2.79
Aug 2021 – July 2022 $2.79
Sept 2021 – Aug 2022 $2.79
Oct 2021 – Sept 2022 $2.79
Nov 2021 – Oct 2022 $3.00
Dec 2021 – Nov 2022 $3.00
Jan 2021 – Dec 2022 $3.00
How to Calculate the Number of Covered Lives?
The PCORI fee is based on the number of employees, spouses, and dependents that are covered by the plan. They can use the actual count method, snapshot method (and snapshot factor sub-method) or Form 5500 method to determine the average number of covered lives. Here is more information on each of the approved counting methods:
1. Actual count method – this method calculates the average of covered lives by adding the number of lives covered each day of the plan year divided by the number of days in the plan year.
For example, a plan that starts on Jan 1 calculates the sum of covered lives (including spouses and dependents) as 3,285,000 divided by 365, which is 9,000. Thus, the PCOR fee for plan year ending in 2022 is 9,000 times $3.00, or $27,000.
2. Snapshot method – this method calculates the average by adding the total number of lives covered on a date during the first, second or third month in each quarter, or equal number of dates during each quarter, and dividing by the number of dates.
For instance, on Jan 4, 2022, the plan covers 2,000 lives; on April 5, 2022, 2,100 lives; on July 5, 2022, 2,050 lives; and on October 4, 2022, 2,050 lives, which totals 8,200. Since the plan ends on Dec 31, 2022, the employer multiplies $3.00 by 2,050 (8,200/4), which equals $6,150.
Snapshot factor method – this sub-method uses the number of participants with self-only coverage plus the number of participants with coverage other than self-only coverage (e.g., family, EE + spouse, EE + child, etc.) on the designated dates multiplied by 2.35, covered on a certain date each quarter.
As another example, on January 10, 2022, the plan has 600 employees with self-only and 800 with coverage other than self-only. On April 11, 2022, 608 with self-only and 800 with other. On July 11, 2022 and October 10, 2022, there were 610 with self-only and 809 with other. Since the plan ends Dec 31, 2022, the total is 9,988 [(600 + (800 × 2.35)) + (608 + (800 × 2.35)) + (610 + (809 × 2.35)) + (610 + (809 × 2.35))] divided by 4, which is 2,497. Thus, the PCOR fee for the 2022 plan year is $3.00 multiplied by 2,497, which equals $7,491.00.
3. Form 5500 method – this is based on the average number of covered lives reported on Form 5500 for the plan year. This can only be used if the Form 5500 is filed no later than the due date for the PCORI fee imposed for that plan year. In other words, if the plan files a Form 5500 extension and thus files past July 31, 2023, this method would not be usable.
Under this method, the total number of lives is calculated by adding the total participant counts at the beginning and end of the year and dividing by 2 for a plan that only offers single coverage. If a plan offers single coverage along with other coverage (e.g., family coverage), the total number of lives is determined by adding the total participant counts at the beginning and end of the year (without dividing by 2).
For instance, a calendar year plan files a Form 5500 for the plan year ending Dec 31, 2022 and files the corresponding 5500 as of July 31, 2023 (no extension), which reports 4,000 plan participants on the first day of the plan year and 4,200 plan participants on the last day of the 2021 plan year. This group must treat the number of lives covered for the plan year ending Dec 31, 2022, as equal to the sum of 4,000 and 4,200, or 8,200. To calculate the PCOR fee, they would multiply $3.00 by 8,200, which equals $24,600.
What if the employer did not pay in prior years?
Regarding failure to file PCORI fees in past years, the IRS has not provided express guidance on how to address late PCORI payments. Based upon the forms and instructions, it appears that they should use the form that corresponds to the due date of the fee. If the IRS notifies the employer plan sponsor of their intent to impose a penalty, the group should have the opportunity to appeal if the failure was due to reasonable cause.
Where to get assistance with calculating the number of covered lives?
Employers should rely on the TPA to assist with the calculation. Even if the employer uses a TPA or a vendor to assist with the calculation, the PCORI fee for a self-insured plan, an ICHRA or an HRA is the responsibility of the plan sponsor and must be paid by the employer to the IRS directly. Failure to file likely carries the same penalty for failure to pay other taxes due on Form 720.