PCORI Fee

Introduction to the PCORI Fee

If you offer a health plan to your employees, you may have heard about the PCORI Fee and wondered, “Is this something I need to worry about?” You’re not alone. For many small business owners and HR managers, the PCORI Fee feels like one more acronym buried in the mountain of health benefits compliance rules.

Let’s slow it down and make this simple.

The PCORI Fee is a federal fee that applies to certain health plans, including some Health Reimbursement Arrangements (HRAs). It was created under the Affordable Care Act (ACA) and helps fund research that compares medical treatments and outcomes. While the dollar amount is relatively small, the compliance requirement is real—and missing it can result in penalties.

In this article, I’ll walk you through what the PCORI Fee is, who pays it, how it’s calculated, and what it means for small businesses offering ICHRAs or other HRAs.

What Is the PCORI Fee?

Where the PCORI Fee Comes From

The PCORI Fee was established under the Affordable Care Act (ACA) in 2010. It funds the Patient-Centered Outcomes Research Institute (PCORI), an independent nonprofit organization authorized by Congress.

According to the IRS and Healthcare.gov, PCORI conducts research to evaluate the effectiveness of medical treatments so patients and providers can make better-informed healthcare decisions.

In short, the PCORI Fee supports comparative effectiveness research—studies that compare different drugs, treatments, and care approaches to see what actually works best.

How Much Is the PCORI Fee?

The fee is calculated annually and adjusted for inflation. The IRS announces the applicable dollar amount each year.

For plan years ending in recent years, the fee has generally ranged from about $2 to $3 per covered life per year. While that may sound minor—and frankly, it is—the compliance filing requirement matters just as much as the payment itself.

The IRS publishes updated fee amounts and instructions on IRS.gov under Form 720 guidance.

Who Has to Pay the PCORI Fee?

Now we’re getting to the part small employers really care about: Does this apply to me?

Employers with Self-Insured Health Plans

If your company offers a self-insured health plan, you are responsible for paying the PCORI Fee.

Self-insured plans include:

• Health Reimbursement Arrangements (HRAs), including ICHRA and QSEHRA  
• Level-funded plans (depending on structure)  
• Other employer-sponsored self-funded medical plans  

Here’s the key point: If the employer assumes the financial risk of medical claims, even partially, the plan is generally considered self-insured.

What About Fully Insured Group Plans?

If you offer a traditional fully insured group health plan, the insurance carrier—not the employer—is responsible for paying the PCORI Fee.

That means:

• Employers with fully insured group health plans typically do not file or pay the PCORI Fee themselves.
• The insurance company handles it and builds the cost into premiums.

However, if you offer both a fully insured plan and an HRA, the HRA may still trigger a separate PCORI obligation.

Does the PCORI Fee Apply to ICHRA?

Yes, in most cases.

An Individual Coverage HRA (ICHRA) is considered a self-insured health plan because the employer reimburses employees directly for qualified expenses. That means the employer is generally responsible for paying the PCORI Fee.

How Is the PCORI Fee Calculated for ICHRA?

For HRAs, including ICHRA:

• The fee is based on the average number of covered employees during the plan year.
• For most HRAs, dependents are not counted separately unless the HRA reimburses dependents.

The IRS allows three methods for calculating the average number of covered lives:

1. Actual count method  
2. Snapshot method  
3. Form 5500 method  

Most small employers use the snapshot method because it’s practical and manageable.

The formula is straightforward:

Average number of covered lives × IRS-announced PCORI rate = total fee owed

When and How Is the PCORI Fee Paid?

Filing Form 720

The PCORI Fee is reported and paid annually using IRS Form 720, the Quarterly Federal Excise Tax Return.

Now here’s where people get tripped up: Even though Form 720 is filed quarterly for other purposes, the PCORI Fee is filed only once per year.

The due date is July 31 of the year following the end of the plan year.

For example:

• If your ICHRA plan year ends December 31, 2025  
• Your PCORI filing and payment are due July 31, 2026  

You must file Form 720 even if the calculated fee is small.

The IRS provides instructions and the most current version of Form 720 at IRS.gov.

What Happens If You Don’t File?

Failure to file or pay can result in:

• Late payment penalties  
• Interest charges  
• IRS correspondence and potential audits  

For small businesses already juggling payroll, compliance, and operations, that’s an avoidable headache.

Why the PCORI Fee Matters for Small Businesses

Let’s be honest—the PCORI Fee won’t break your budget. But ignoring it can create unnecessary compliance risk.

Here’s why small employers should pay attention:

• It applies automatically if you offer an HRA  
• It requires a separate IRS filing  
• It’s easy to overlook if you’re new to self-funded benefits  

For startups and growing companies shifting from traditional group plans to ICHRA, this is often one of the first compliance items they encounter.

The good news? It’s manageable with the right system in place.

Best Practices for Managing the PCORI Fee

1. Track Your Covered Employees Accurately

Keep clean monthly records of:

• Active employees participating in the HRA  
• Plan year start and end dates  

This makes calculating your average covered lives much easier.

2. Calendar the July 31 Deadline

Set recurring reminders for:

• Early June: calculate fee  
• Early July: prepare Form 720  
• Before July 31: file and submit payment  

Compliance works best when it’s predictable.

3. Coordinate with Payroll or Your Benefits Platform

If you’re using an HRA platform, ask:

• Do they track covered lives?  
• Do they generate reporting data for Form 720?  
• Do they provide compliance reminders?  

You don’t want to piece this together at the last minute.

PCORI Fee and Small Business Strategy

When small businesses consider moving to ICHRA, they often ask, “Are we taking on more compliance?”

Technically, yes—there are a few responsibilities like the PCORI Fee. But compare that to:

• Annual group policy renewals  
• Large premium increases  
• Participation requirements  
• Complex carrier negotiations  

In most cases, the administrative burden of an HRA is significantly lighter, especially with the right technology partner.

And remember, the PCORI Fee is typically just a few dollars per employee per year. That’s minimal compared to unpredictable group premium hikes.

Final Thoughts on PCORI Fee and SimplyHRA

The PCORI Fee is a small but important compliance obligation for employers offering HRAs like ICHRA. It requires annual calculation, Form 720 filing, and timely payment—but with proper tracking and reminders, it’s entirely manageable. At SimplyHRA, we help small business owners and HR managers stay compliant, track covered employees accurately, and simplify the administrative side of offering ICHRA benefits so nothing slips through the cracks. If you’d like guidance on the PCORI Fee or setting up compliant, tax-advantaged health benefits, contact us at info@simplyhra.com or schedule a call at https://www.simplyhra.com/contact. Let’s make your health benefits simple, compliant, and employee-friendly.

PCORI Fee and Plan Year Nuances Small Employers Overlook

When I speak with founders and HR managers, one thing comes up again and again: “Wait, our plan doesn’t run on a calendar year. Does that change anything?”

Yes, it does—and this is where small details matter.

Calendar Year vs. Non-Calendar Year Plans

The PCORI Fee is tied to your plan year, not the calendar year.

If your ICHRA or HRA runs:

• January 1 – December 31 → PCORI due July 31 of the following year  
• July 1 – June 30 → PCORI due July 31 immediately after June 30  

For example:

• Plan year: July 1, 2025 – June 30, 2026  
• Filing deadline: July 31, 2026  

That’s only one month after your plan year ends. If you’re not tracking it carefully, it can sneak up on you.

The IRS instructions for Form 720 clearly state the filing is due by July 31 of the year following the last day of the plan year. That’s straight from the source at IRS.gov.

Short Plan Years and Partial Years

What if you:

• Launch your ICHRA mid-year?  
• Terminate your HRA before year-end?  
• Change plan years?  

You still owe the PCORI Fee for that short plan year.

In that case:

• You calculate the average number of covered lives during the short period.
• You use the applicable rate for the year in which the plan year ends.
• You file by July 31 following that short plan year end.

Even a three-month HRA plan year triggers a filing requirement. There’s no minimum duration exemption.

Mergers, Acquisitions, and Ownership Changes

Growing businesses often go through structural changes. And here’s where things get interesting.

What Happens If Your Company Is Acquired?

If your business:

• Is acquired mid-plan year  
• Merges with another entity  
• Transfers its HRA to a successor employer  

The responsibility for the PCORI Fee generally follows the plan sponsor for the applicable plan year.

That means:

• If you sponsored the HRA during the plan year, you are typically responsible for filing and paying.
• If the successor company takes over the plan, coordination is critical.

This is especially important for startups and venture-backed companies scaling quickly. During due diligence, buyers often look at compliance items like Form 720 filings. Missing PCORI filings can raise red flags.

It’s a small fee, but it signals whether the company is buttoned up on benefits compliance.

PCORI Fee and QSEHRA Differences

Many small employers ask how the PCORI Fee applies to QSEHRA compared to ICHRA.

The short answer? Both are subject to the PCORI Fee because both are self-insured arrangements.

However, there are subtle differences in structure:

• QSEHRA is limited to small employers (fewer than 50 full-time equivalent employees).  
• ICHRA is available to employers of any size.  

From a PCORI perspective, both:

• Require counting covered employees  
• Require annual Form 720 filing  
• Follow the same July 31 deadline rule  

The compliance mechanics are nearly identical. What changes is the broader regulatory framework around each arrangement under the ACA and IRS guidance.

Interaction With COBRA and the PCORI Fee

Here’s something that doesn’t get talked about enough.

If your HRA is subject to COBRA, former employees who elect COBRA continuation coverage may count as covered lives for PCORI purposes.

Do COBRA Participants Count?

Generally, yes.

If:

• A terminated employee elects COBRA for your HRA  
• They remain covered during the plan year  

They are included in your average covered lives calculation.

Why does this matter?

Because small employers sometimes forget about former employees when calculating average covered lives. If you only count active employees and overlook COBRA participants, your filing could be inaccurate.

It may only change your fee by a few dollars—but accuracy is the goal.

How the PCORI Fee Affects Benefit Budgeting

Let’s zoom out for a moment.

From a strategic standpoint, the PCORI Fee should be factored into your overall health benefits budgeting, even if it’s modest.

Estimating the Annual Impact

Here’s a simple budgeting framework:

1. Estimate average covered employees  
2. Multiply by the most recent IRS-announced rate  
3. Add a small buffer for inflation adjustments  

For example:

• 20 employees  
• Approximate rate: $3 per covered life  
• Estimated fee: $60 annually  

That’s less than the cost of one month of traditional group premium increases in many markets.

In other words, the PCORI Fee is rarely a financial burden. It’s a compliance task—not a budget breaker.

Common Mistakes Small Employers Make

Over the years, I’ve seen a few patterns.

Mistake #1: Assuming the CPA Handles It Automatically

Many business owners assume their CPA files everything related to federal taxes. But Form 720 is an excise tax form, not an income tax form.

If you don’t specifically coordinate with your CPA or payroll provider, it can fall through the cracks.

Always confirm:

• Who is responsible for filing Form 720?  
• Who calculates covered lives?  
• Who submits payment?  

Mistake #2: Forgetting After Switching from Group to ICHRA

When employers move from:

• Fully insured group plan → ICHRA  

They may forget that they’ve shifted PCORI responsibility from the carrier to themselves.

That transition year is when errors often happen.

Mistake #3: Missing the Final Filing After Terminating an HRA

If you shut down your HRA, you still owe one final PCORI filing for the last plan year.

No active plan doesn’t mean no filing. You must close it out properly.

The Future of the PCORI Fee

The PCORI Fee has been extended multiple times by Congress. It was originally scheduled to sunset, but lawmakers extended it through at least 2029 under federal legislation.

That means small employers offering HRAs should expect this requirement to remain in place for the foreseeable future.

As always, fee amounts are indexed annually, and updates are published by the IRS. Staying current with official guidance is essential.

Compliance Confidence With the Right Support

When small businesses move toward modern benefits like ICHRA, they gain flexibility and cost control—but they also step into the role of plan sponsor. That comes with responsibilities, including the PCORI Fee.

The good news?

With the right tracking, reminders, and reporting tools, this becomes routine—not risky.

At SimplyHRA, we help small business owners and HR managers track covered employees, maintain audit-ready documentation, and stay ahead of compliance obligations like the PCORI Fee. Our platform simplifies the operational side of ICHRA so you can focus on running your business, not deciphering IRS forms. If you’d like support managing your employer health benefits or ensuring your HRA stays compliant, contact us at info@simplyhra.com or schedule a consultation at https://www.simplyhra.com/contact. Let’s make health benefits easier, clearer, and fully compliant for your team.

Frequently Asked Questions (FAQs) about PCORI Fee:

Q: Does the PCORI Fee apply to dental or vision benefits offered through my company?  

A: Generally, no—if the dental or vision coverage qualifies as an “excepted benefit” under federal rules. Stand-alone dental and vision plans that are separately elected and separately insured are typically exempt from the PCORI Fee. However, if dental or vision benefits are bundled into a self-insured medical plan and not considered excepted benefits, they may indirectly factor into the covered lives calculation. The distinction is based on ACA definitions outlined by the Departments of Labor, Treasury, and Health and Human Services.

Q: If an employee waives our ICHRA, do they count toward the PCORI Fee?  

A: No. Only employees who are actually covered under the HRA during the plan year are counted. If an employee is eligible but formally opts out or declines participation, they are not included in your average covered lives calculation for PCORI purposes.

Q: Do dependents count separately under an HRA for PCORI calculations?  

A: It depends on how your HRA is structured. If your HRA reimburses expenses only for employees (self-only coverage), then only employees are counted. If your HRA allows reimbursement for spouses and dependents, then those covered dependents may need to be included in your count. The specific plan design and reimbursement eligibility rules determine how covered lives are calculated.

Q: Is there a minimum number of employees required before the PCORI Fee applies?  

A: No. There is no small employer exemption. Even a business with one employee offering a self-insured HRA must comply with PCORI filing and payment requirements. The fee amount may be small, but the obligation applies regardless of company size.

Q: Can the PCORI Fee be paid from plan assets instead of company funds?  

A: For HRAs and other employer-funded arrangements, the PCORI Fee is generally paid by the plan sponsor (the employer) using company funds—not employee salary reductions. Because HRAs are funded solely by the employer, the payment responsibility rests with the business itself.

Q: Is the PCORI Fee tax-deductible for the business?  

A: In most cases, yes. The PCORI Fee is generally treated as an ordinary and necessary business expense under federal tax rules and may be deductible. Employers should confirm treatment with their tax advisor to ensure proper reporting based on their entity structure.

Q: What payment methods are accepted when filing Form 720 for the PCORI Fee?  

A: The IRS typically requires electronic payment through the Electronic Federal Tax Payment System (EFTPS) or other approved electronic methods. Paper checks are generally discouraged or restricted for excise tax payments. Employers should enroll in EFTPS in advance if they are not already registered to avoid last-minute issues before the July 31 deadline.

Q: Does offering a taxable health stipend instead of an HRA trigger the PCORI Fee?  

A: No. If you provide a taxable health stipend that is simply additional wages with no formal plan document and no tax-free reimbursement structure, it is not considered a group health plan and does not trigger the PCORI Fee. However, taxable stipends do not offer the same tax advantages or compliance protections as structured arrangements like ICHRA or QSEHRA.

Q: Are church plans or government employers subject to the PCORI Fee?  

A: Certain governmental and church plans may have different treatment under federal law. However, many self-insured governmental plans are still subject to the PCORI Fee. Because public-sector and church-plan rules can be nuanced, employers in those categories should review IRS guidance carefully or consult benefits counsel to confirm applicability.

Q: Does the PCORI Fee affect employees’ personal tax returns?  

A: No. The PCORI Fee is entirely an employer-level obligation. Employees do not report it on their individual tax returns, and it does not change their personal tax liability. It is strictly a plan sponsor filing and payment requirement handled through Form 720 by the employer.

Q: If we offer both an ICHRA and a separate self-insured medical reimbursement plan, do we pay the PCORI Fee twice?  

A: Potentially, yes. The IRS generally treats each self-insured health plan as subject to the PCORI Fee. However, certain arrangements may be combined for counting purposes if they share the same plan year and plan sponsor. The structure of your plan documents matters. If you maintain multiple distinct self-insured arrangements, you may need to calculate covered lives separately. Coordination with your benefits administrator is key to avoiding underreporting or double counting.

Q: Does the PCORI Fee apply to health plans covering employees outside the United States?  

A: In general, the PCORI Fee applies to plans that provide coverage to employees residing in the United States. If a self-insured plan covers employees who primarily work and reside abroad, and the coverage is designed mainly for expatriates, special rules may apply. Employers with international employees should review IRS guidance carefully to determine whether those covered lives are included in the calculation.

Q: If our company changes payroll providers, does that affect our PCORI filing?  

A: Changing payroll providers does not eliminate your responsibility to file Form 720. The PCORI Fee is not automatically handled through payroll tax filings. Because Form 720 is an excise tax return, you must ensure continuity during transitions. Before switching providers, confirm who is tracking covered lives and who will handle the July 31 filing to prevent compliance gaps.

Q: Are Health Savings Accounts (HSAs) subject to the PCORI Fee?  

A: No. HSAs are individual accounts owned by employees and are not group health plans. Therefore, they are not subject to the PCORI Fee. However, if the employer sponsors a self-insured high-deductible health plan alongside HSA contributions, the underlying self-insured medical plan may trigger PCORI obligations.

Q: What happens if we overpay the PCORI Fee?  

A: If you overpay, you may generally claim a credit or refund by following the procedures outlined in the Form 720 instructions. Accurate recordkeeping is important in case you need to reconcile payment discrepancies. As with other federal tax filings, documentation should be retained in case of IRS inquiry.

Q: Do seasonal or part-time employees count toward the PCORI calculation?  

A: If seasonal or part-time employees are covered under your self-insured HRA during the plan year, they count as covered lives. The PCORI Fee is based on who is actually covered, not on full-time status. Eligibility rules in your plan document determine who is included in the average count.

Q: If our company dissolves before the July 31 deadline, are we still required to file?  

A: Yes, in most cases. If your company sponsored a self-insured plan during the prior plan year, you generally must file and pay the PCORI Fee even if the business has since dissolved. The responsible party handling the company’s wind-down—often an owner or designated officer—should ensure final compliance filings are completed.

Q: Can penalties for late PCORI filing be waived?  

A: The IRS may consider penalty relief if you can demonstrate reasonable cause for failure to file or pay on time. However, relief is not automatic. Employers must typically provide a written explanation and supporting documentation. It’s far better to calendar deadlines and file on time than to rely on penalty abatement.

Q: Does the PCORI Fee apply to retiree-only HRAs?  

A: Yes, retiree-only self-insured HRAs are generally subject to the PCORI Fee. Even though retiree-only plans are exempt from certain ACA market reforms, they are still considered applicable self-insured health plans for PCORI purposes. Covered retirees would be included in your average covered lives calculation.

Q: If we amend our HRA mid-year to increase allowances, does that change the PCORI Fee amount?  

A: No. The PCORI Fee is based on the average number of covered lives, not the reimbursement allowance amount. Increasing or decreasing benefit levels does not directly affect the fee calculation. What matters is how many individuals were covered during the plan year.

Staying Ahead of the PCORI Fee with the Right Partner

The PCORI Fee may be small in dollar amount, but it carries real compliance responsibility. If you sponsor an ICHRA, QSEHRA, or any self-insured health arrangement, you’re responsible for tracking covered lives, filing Form 720, and paying the fee on time. Miss the deadline, and you could face unnecessary penalties. Stay organized, and it becomes just another manageable annual task. For growing businesses juggling hiring, payroll, and benefits strategy, clarity and systems make all the difference.

At SimplyHRA, we’ve worked with founders and HR leaders who transitioned from traditional group plans to ICHRA and suddenly realized they were now the plan sponsor. We’ve been in those conversations where someone says, “Wait, we have to file what form?” That’s exactly why our platform focuses on clean recordkeeping, audit-ready reporting, and built-in compliance support. We help employers track participation, document plan years properly, and avoid surprises—so the PCORI Fee and other regulatory requirements don’t derail your momentum.

If you want health benefits that give employees choice while keeping your compliance buttoned up, let’s talk. Contact SimplyHRA at info@simplyhra.com or schedule a consultation at https://www.simplyhra.com/contact. We’ll help you simplify your benefits, stay compliant, and build a program your employees actually appreciate.