Companies that sponsor a level-funded or self-funded health plan, or certain Health Reimbursement Arrangements (HRAs), may have an annual IRS filing obligation that is easy to overlook: the PCORI fee. The dollar amount may seem small, but a missed deadline or an incorrect filing can trigger penalties.
What it is
PCORI stands for the Patient-Centered Outcomes Research Institute, a nonprofit created under the Affordable Care Act to fund healthcare research. The ACA funds it through an annual fee paid to the IRS by certain employers and insurers. This includes companies that sponsor a level-funded, self-funded health plan or certain HRAs. The per-person amount is a few dollars, but it scales with plan size, and in common plan arrangements the obligation sits with the employer. For fully insured coverage, the issuer generally reports and pays the fee; for applicable self-insured plans, including many employer-sponsored arrangements, the plan sponsor is responsible. Congress extended the fee to apply to plan years ending before October 1, 2029.
Who pays
Whether you owe depends on your coverage type.
- Fully insured plans: the insurance carrier pays for the insured major medical plan. No employer Form 720 filing is required for that insured plan, although a separate employer obligation may apply if the employer also sponsors an HRA or other self-insured arrangement
- Self-funded (self-insured) plans: the employer is the plan sponsor and owes the fee. This includes level-funded plans, which are often marketed as fully insured but are structured as self-insured.
- HRAs: An HRA paired with a fully insured medical plan generally creates an employer PCORI fee obligation for the HRA. If the HRA is integrated with a self-funded medical plan sponsored by the same employer, special aggregation/counting rules may apply so that individuals are not double-counted. ICHRAs and QSEHRAs are also subject to the fee, paid by the employer.
Not subject to the fee: excepted benefits such as standalone dental or vision and most health FSAs so long as they meet excepted benefits requirements, Employee Assistance Programs, disease management, and wellness programs that do not provide significant benefits in the nature of medical care or treatment.
How much
The fee is charged per covered life and adjusted annually for inflation:
- $3.22 per covered life for plan years ending on or after October 1, 2023 and before October 1, 2024
- $3.47 per covered life for plan years ending on or after October 1, 2024 and before October 1, 2025
- $3.84 per covered life for plan years ending on or after October 1, 2025 and before October 1, 2026
The rate that applies is the one in effect at the end of your plan year. A calendar-year plan ending December 31, 2025, uses the $3.84 rate.
Counting covered lives
For self-funded or level-funded medical plans, covered lives include enrolled employees, spouses, and dependents; anyone covered by both the plan and an integrated HRA is counted once. For an HRA that is not integrated with a self-funded medical plan sponsored by the same employer, sometimes referred to as a “standalone” HRA, generally count only participating employees, not dependents, where the special HRA counting rule applies.
The IRS allows three counting methods for self-insured or level-funded sponsors:
- Actual count: total covered lives on each day of the plan year, divided by the number of days.
- Snapshot: covered lives counted on one date per quarter (or per month), then averaged. Most common when daily enrollment data is not available.
- Form 5500: participant counts from the plan’s Form 5500, using the IRS-prescribed formula. This method can be convenient if you already file a Form 5500, but employers should confirm the formula against the plan’s coverage tiers and the current Form 720 instructions before using it.
Where allowed by IRS rules, it is possible to switch methods year to year. A plan sponsor may select among the IRS-approved methods for a given year, but should apply the selected method consistently for that year and retain support for the calculation. A Third-Party Administrator (TPA) can usually pull the enrollment data you need.
How and when to file
Report and pay the fee on IRS Form 720 (Quarterly Federal Excise Tax Return). Although Form 720 is normally quarterly, employers who owe only PCORI fees file it once a year, for the second quarter, with a quarter-ending date of June 30.
The deadline is July 31 of the year following your plan year end. Fees for a plan year ending in 2025 are due July 31, 2026. The fee is reported on Line 133: use 133(c) for self-insured plan years ending before October 1 (the lower rate) and 133(d) for self-insured plan years ending on or after October 1 (the higher rate). A frequent mistake is filing for the wrong quarter; employers with a December 31 plan year end sometimes file for the quarter ending December 31 when they should file for the quarter ending June 30 of the following year, which the IRS may treat as late or misapplied.
Pay electronically through EFTPS (select Q2 as the tax period) or mail a check with the Form 720-V voucher.
Missing the deadline
The fee is an excise tax, so late filing or late payment may result in IRS penalties and interest. As a general example, IRS failure-to-file penalties may be 5% of the unpaid tax per month, up to 25%, and separate failure-to-pay penalties and interest may also apply. If a deadline is missed, consult your tax advisor to discuss filing a separate Form 720 for each unfiled plan year as soon as possible; do not combine years on one form. To correct a previously filed return, use Form 720X.
Practical tips
- Set a calendar reminder well ahead of July 31, which can fall during a busy benefits-administration period depending on your plan year and may land in the middle of open enrollment and summer staffing.
- Confirm your plan type with your broker or TPA; level-funded plans are commonly misclassified.
- Involve your TPA early for covered-life counts, but remember the obligation to file and pay stays with the employer.
- Use the most recent Form 720; the IRS updates it each spring with current rates.
- Keep records: your filed Form 720, your covered-life count, and the method used.
For self-funded plans and HRAs, the employer is responsible, not the insurer. The filing might seem simple once you have the covered-life count, but the window is narrow and the penalties are real. Employers should confirm the applicable plan arrangements, counting method, and current Form 720 instructions. Build it into your annual compliance calendar alongside ACA reporting and other benefits deadlines.
This article is for general informational purposes and does not constitute legal or tax advice. Consult a qualified benefits attorney or tax advisor for guidance specific to your organization. Form 720 (Quarterly Federal Excise Tax Form) can be found here: https://www.irs.gov/pub/irs-pdf/f720.pdf.
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