August 21, 2014
Initial revenue reports about the Medical Device Tax indicate the tax fell short of its expected revenue in the second and third quarter of fiscal year 2013, generating $913.4 million in revenue compared with the $1.2 billion the Internal Revenue Service expected.
The controversial Medical Device Tax went into effect on Jan. 1, 2013. Here are 15 things to know about the tax.
1. The Medical Device Tax was issued as part of the Patient Protection and Affordable Care Act under section 4191 of the Internal Revenue Code.
2. Revenue collected from the tax is meant to help offset the initial investment of PPACA reform costs. It is one of several in a suite of fees applied to big players in the healthcare industry. While the device industry must pay this tax, payers and pharmaceutical companies face similar fees respective of their industry areas.
3. The tax is a 2.3 percent excise tax on the sale of certain medical devices, payable by the manufacturer or importer of the device. Applicable medical devices are defined in section 201(h) of the Federal Food, Drug Cosmetic Act that are intended for humans.
4. Known as the retail exemption, manufacturers of devices such as eyeglasses, contact lenses and hearing aids — those which are purchased directly by the general public for individual use — are exempt from the tax.
5. Over the next 10 years, the tax is projected to bring in approximately $29 billion in revenue, according to the Joint Committee on Taxation. In fiscal year 2013, the JCT estimated the tax would raise $1.7 billion.