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Form 720 is a Federal Excise Tax return used to report and pay excise taxes that run into several types, which also include the Patient Centered Outcomes Research Institute (PCORI) fee. Under the ACA, the PCORI fee was instituted to help fund research for the improvement of patient care and options of treatment. Form 720 is filed every quarter for the other taxes except that only once in a year is the PCORI fee reported and paid- generally by July 31 of the year immediately following the year at the end of the plan.

If you are an employer with a self-insured health plan, including HRAs (Health Reimbursement Arrangements) or FSAs (Flexible Spending Accounts), you are responsible for filing Form 720 and paying the PCORI fee. Insurance providers for fully insured plans generally must comply with the PCORI requirements, but the self-funded plans are the responsibility of the plan sponsors. Various organizations, including small businesses, nonprofit organizations, and government entities, fall into this group.

The PCORI fee is adjusted annually according to the inflation index and the average amount of covered lives under the plan. The IRS allows very many methods to determine the average life count for the plan, such as Actual Count Method, Snapshot Method, and Form 5500 Method. Accurate calculation is vital in order to avoid IRS penalties for underpayment. Always check at the IRS website to get the current PCORI rate that applies to your plan year.

To file, download the most recent version of Form 720 from the IRS website, complete the necessary sections for second quarter filing, and include the appropriate PCORI fee in Part II, IRS No. 133. You can either mail the form or use IRS-approved e-filing solutions for faster processing. Ensure the form is submitted on or before the July 31 deadline to remain compliant and avoid penalties. 

Keeping yourself updated with Form 720 PCORI requirements will keep your business in compliance with ACA. Thus, avoiding unnecessary penalties. Most employers opt to hire the services of tax professionals or third-party administrator for filing and payment. Being proactive, whether you're a small business owner or a benefits administrator, is key in facilitating hassle-free compliance for your health plans.