Medicare Compliance & Reimbursement

Tip: Check feds’ FAQs daily for COVID-19 changes.

Whether you’re still waiting for CARES Act funding to be deposited into your account or you already received your share, you may be surprised by some recent changes. The feds revised their guidance with some tax-related updates. Read on for the details.

Nuts and bolts: Back in April, the Department of Health and Human Services (HHS) began its “General Distribution” of CARES Act Provider Relief Funds (PRF) and deposited the money directly into Medicare providers’ accounts. This staggered $50 billion rollout was followed by several more billions in “Targeted Distributions” across the Centers for Medicare & Medicaid Services (CMS) spectrum of providers and suppliers.

HHS guidance on PRF payments, the terms and conditions associated with the funding, attestation portals, and more has been fluid, with updates coming sometimes daily. In addition, many of the revisions have been made quietly without HHS’ normal fanfare.

Now: On July 10, HHS updated its CARES Act Provider Relief Fund frequently asked questions (FAQs) with two answers related to income tax and the payments. These additions coordinate with recent Internal Revenue Service (IRS) guidance on provider relief.

 Consider These Takeaways

After months of waiting, providers finally have their answer on whether PRF payments are taxable. In short, a healthcare provider can be taxed on relief funds, according to both the HHS and IRS.

“A payment to a business, even if the business is a sole proprietorship, does not qualify as a qualified disaster relief payment under section 139 [of the Internal Revenue Code],” the IRS advises in its FAQs.

HHS guidance aligns with the IRS. “Bottom line, HHS considers a PRF payment includable as gross income under Section 61 of the Internal Revenue Code (the Code),” explain attorneys Mark Cunningham, Courtney J. Keehan, and Jed Roebuck with Chambliss, Bahner & Stophel, P.C. in online analysis. “A PRF payment cannot be excluded by a recipient from its gross income as a qualified disaster relief payment under Section 139 of the Code. HHS’ position on this issue is substantially similar to guidance issued recently by the IRS,” they write.

Plus: HHS also offers direction on tax-exempt healthcare providers that aligns with new IRS guidance. Normally, nonprofit healthcare providers are exempt from income taxation by the feds, indicates HHS. However, now, “a payment received by a tax-exempt healthcare provider from the Provider Relief Fund may be subject to tax under section 511 if the payment reimburses the provider for expenses or lost revenue attributable to an unrelated trade or business as defined in section 513,” HHS stresses.

National organizations like the American Medical Association (AMA) and state groups like the California Medical Association (CMA) are concerned about this new update, CMA suggests in a release. “AMA and CMA are both asking Congress to exempt physicians from being taxed on the payments received from the Provider Relief Fund. We are hoping to include this provision in the next COVID-19 relief package expected at the end of July,” CMA says.

Bottom line: As COVID-19 surges across the country, more funding — and more changes are expected. It’s critical to stay on top of these daily Medicare and HHS changes as policies continue to evolve. Providers may also want to “contact their tax preparers immediately to discuss the potential tax implications of this latest HHS and IRS guidance,” advise Cunningham, Keehan, and Roebuck.

Note: Read the IRS guidance at www.irs.gov/newsroom/frequently-asked-questions-about-taxation-of-provider-relief-payments and see the HHS Provider Relief Funds FAQs at www.hhs.gov/coronavirus/cares-act-provider-relief-fund/faqs/provider-relief-fund-general-info/index.html.

Disclaimer: Information related to COVID-19 is changing rapidly. This information was accurate at the time of writing. Be sure to stay tuned to future issues of Medicare Compliance & Reimbursement for more information.