It’s tax season. You will soon be in your accountant’s office grappling with the tax implications of the Provider Relief Fund (PRF) payments you received last year. Because DME suppliers aren’t tax experts and tax experts are not necessarily DME specialists, your first meeting may start off with a routine inquiry that leads to a much bigger question:
Accountant:
What is this big deposit I see on your April bank statement?
Supplier:
Oh, that is money we got from the Provider Relief Fund. Do I have to pay taxes on that?!?
The short answer is yes (unless the recipient is a non-profit entity exempted from income taxes).*
Section 61 of the Internal Revenue Code starts with the position that everything is income unless specifically excluded:
“Except as otherwise provided in this subtitle, gross income means all income from whatever source derived …”
There are no existing rules that exempt PRF payments from income, and unlike forgiven Paycheck Protection Program (PPP) loans, Congress did not stipulate an explicit exception in the enabling (or subsequent) legislation.
In an FAQ on its website, the IRS spoke specifically to the possibility that recipients might exclude the payments as qualified disaster relief payments (emphasis added):
Q1: May a health care provider that receives a payment from the Provider Relief Fund exclude this payment from gross income as a qualified disaster relief payment under section 139 of the Internal Revenue Code (Code)?
A: No. 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. The payment from the Provider Relief Fund is includible in gross income under section 61 of the Code.
Because recipients had constructive receipt of the funds in 2020, the entire amount is includable in last year’s gross income and subject to income tax.
“Can I use the PRF money to pay the taxes?”
HHS posted an FAQ on its site in December clarifying its position:
Can providers use Provider Relief Fund payment to pay taxes? (Added 12/11/2020)
Yes. HHS considers taxes imposed on Provider Relief Fund payments to be "healthcare related expenses attributable to coronavirus" that are reimbursable with Provider Relief Fund money, except for Nursing Home Infection Control Distribution payments.
Nonetheless, suppliers must return any portion of PRF funds not used to reimburse healthcare-related funds or lost revenues attributable to coronavirus before the current deadline of June 30, 2021. While suppliers should be able to deduct any subsequent repayments in the year repaid, HHS has not said how or if suppliers will account for the tax deduction benefit in future PRF reporting.
*This article is for informational purposes only. It is not tax advice, and you should not rely on it as such. Consult your own tax advisors familiar with your specific circumstances.
SOURCE LINKS
https://www.irs.gov/newsroom/frequently-asked-questions-about-taxation-of-provider-relief-payments#:~:text=Q%3A%20Is%20a%20tax%2Dexempt,under%20section%20501(a).
https://www.hhs.gov/coronavirus/cares-act-provider-relief-fund/faqs/provider-relief-fund-general-info/index.html#auditing-reporting-requirements
Accountant:
What is this big deposit I see on your April bank statement?
Supplier:
Oh, that is money we got from the Provider Relief Fund. Do I have to pay taxes on that?!?
The short answer is yes (unless the recipient is a non-profit entity exempted from income taxes).*
Section 61 of the Internal Revenue Code starts with the position that everything is income unless specifically excluded:
“Except as otherwise provided in this subtitle, gross income means all income from whatever source derived …”
There are no existing rules that exempt PRF payments from income, and unlike forgiven Paycheck Protection Program (PPP) loans, Congress did not stipulate an explicit exception in the enabling (or subsequent) legislation.
In an FAQ on its website, the IRS spoke specifically to the possibility that recipients might exclude the payments as qualified disaster relief payments (emphasis added):
Q1: May a health care provider that receives a payment from the Provider Relief Fund exclude this payment from gross income as a qualified disaster relief payment under section 139 of the Internal Revenue Code (Code)?
A: No. 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. The payment from the Provider Relief Fund is includible in gross income under section 61 of the Code.
Because recipients had constructive receipt of the funds in 2020, the entire amount is includable in last year’s gross income and subject to income tax.
“Can I use the PRF money to pay the taxes?”
HHS posted an FAQ on its site in December clarifying its position:
Can providers use Provider Relief Fund payment to pay taxes? (Added 12/11/2020)
Yes. HHS considers taxes imposed on Provider Relief Fund payments to be "healthcare related expenses attributable to coronavirus" that are reimbursable with Provider Relief Fund money, except for Nursing Home Infection Control Distribution payments.
Nonetheless, suppliers must return any portion of PRF funds not used to reimburse healthcare-related funds or lost revenues attributable to coronavirus before the current deadline of June 30, 2021. While suppliers should be able to deduct any subsequent repayments in the year repaid, HHS has not said how or if suppliers will account for the tax deduction benefit in future PRF reporting.
*This article is for informational purposes only. It is not tax advice, and you should not rely on it as such. Consult your own tax advisors familiar with your specific circumstances.
SOURCE LINKS
https://www.irs.gov/newsroom/frequently-asked-questions-about-taxation-of-provider-relief-payments#:~:text=Q%3A%20Is%20a%20tax%2Dexempt,under%20section%20501(a).
https://www.hhs.gov/coronavirus/cares-act-provider-relief-fund/faqs/provider-relief-fund-general-info/index.html#auditing-reporting-requirements
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