Be Sure to Pay the PCORI Fee if You Have an HRA

If you own your business and have at least one employee, a great way to obtain the maximum tax deductions possible for health care insurance and other medical expenses is to establish a health reimbursement arrangement for your employees, which can include you and/or your spouse. There are three types:

  • 105-HRAs, which are available where your spouse is your only employee;
  • Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs);
  • Individual Coverage Health Reimbursement Accounts (ICHRAs);

All three types of HRAs come with a pesky annual filing requirement: each year, the plan sponsor must file IRS Form 720 and pay a Patient-Centered Outcomes Research Institute (PCORI) fee.

But there is an exception: you need not pay the PCORI fee if your HRA is an “excepted benefit.” This is the case if the HRA reimburses employees for only limited-scope dental and vision expenses or long-term care coverage and is not integrated with a group health plan.

The PCORI fee is quite small—so small that it makes little sense to pay a tax professional to file the form and pay the fee for you.

Fortunately, filing the form is relatively simple. You can easily do it yourself.

What Is the PCORI Fee For?

Sponsors of group health plans and self-insured plans are required to pay an annual fee to help support the Patient-Centered Outcomes Research Institute.

The PCORI is a non-profit institute created as part of the Affordable Care Act. It funds research on the comparative effectiveness of medical treatments.

The PCORI fee, adopted as part the Affordable Care Act legislation, was originally scheduled to expire after 2019.

But on December 20, 2019, your lawmakers extended the fee through October 1, 2029.

How Much Is the Fee?

Currently, the PCORI fee is $2.54 times the “average number of lives covered” by your HRA during the previous plan year.

To determine the lives covered, count each participating employee as a covered life. Don’t count dependents.

If you’re the only employee of your incorporated business, or your spouse is your only employee, there is only one life covered by your HRA. Your PCORI fee is $2.54 x 1 = $2.54.

If you have multiple employees, there are three ways to determine the average number of lives covered:

  • Actual count method. Add the total number of lives covered for each day of the previous plan year, and divide the total by the number of days in the policy year.
  • Snapshot method. Add the total lives covered on a date during the first, second, or third month of each quarter of the plan year, and divide the total by four; the dates in each quarter must be within three days of the dates for corresponding quarters—for example, January 15, April 16, July 14, October 15.
  • Form 5500 method. Take the number of participants reported on IRS Form 5500, Annual return/Report of Employee Benefit Plan, at the beginning of the plan year, plus the number reported at the end of the plan year, and divide by two. Form 5500 need only be filed if your plan has 100 or more participants.

You can use a different method from one year to the next. If you have a small number of employees, the snapshot method is easiest to use.

Example. ABC Inc. has an ICHRA for its employees. It uses the snapshot method to determine the lives covered. It had six covered employees on February 1, four employees on May 1, four employees on August 1, and two employees on November 1. Sixteen total employees divided by four = four total lives covered. ABC’s PCORI fee is 4 x $2.54 = $10.16.

How to Pay the PCORI Fee

  • You pay the PCORI fee by filing IRS Form 720, Quarterly Federal Excise Tax Return.
  • You must file Form 720 by July 31 of the calendar year immediately following the last day of your HRA plan year.

Example. If your plan year ends December 31, 2020, Form 720 must be filed by July 31, 2021. But if the plan year instead ends on January 31, 2021, Form 720 would be due the following year, on July 31, 2022 (18 months later).

Form 720 is used to pay various types of excise taxes and is generally filed quarterly. But if you use it to pay only the PCORI fee, you file it just once each year.

Fill out the form as follows:

  • List the average number of lives covered by your HRA on line 133(a).
  • Multiply the number of lives covered by $2.54, and list the total in line 133(c) in the “Fee” column and also in the “Tax” column.
  • List the fee amount at the bottom of Part II, in the space after “Add all amounts in Part II.”
  • List this same amount in box 3 (“Total tax”) at the top of Part III.
  • Enter the tax due in line 10.
  • Sign at the bottom.
  • Complete the payment voucher (720-V) at the end of Form 720.

Be sure to fill in the circle in Section 3 of the payment voucher, indicating that the tax period for the fee is the second quarter. If you don’t do this, IRS computers will generate a late filing notice.

Advance deposits aren’t required for the PCORI fee. Thus, you are not required to pay it electronically using the IRS Electronic Federal Tax Payment System (EFTPS). You may pay it by check with your completed Form 720.

If you do pay the fee electronically through EFTPS, it should be applied to the second quarter. In EFTPS, select Q2 for the Quarter under Tax Period on the “Business Tax Payment” page.


Unlike most taxes and fees imposed by the Affordable Care Act, the PCORI fee is a tax-deductible business expense.


Business owners who have established 105-HRAs, QSEHRAs, and ICHRAs to reimburse their employees for medical expenses need to pay an annual fee to help support the PCORI.

  • The fee is due by July 31 of the calendar year following each plan year.
  • The fee is small—currently $2.54 per covered employee.
  • The fee is paid by filing Form 720 with the IRS.
  • The fee is tax-deductible.


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