What Is Medical Excise Tax and Who Pays It?

The medical excise tax most people mean by that phrase is the 2.3% federal tax the Affordable Care Act placed on medical device sales. It was repealed in December 2019 and has not been collected on sales after December 31, 2015.¹ The ACA created several other healthcare excise taxes and fees, though, and three of them are still in effect in 2026: the PCORI fee paid by health insurers and self-insured employers, the branded prescription drug fee paid by pharmaceutical manufacturers, and the 10% indoor tanning services tax paid by tanning salons.

The Medical Device Excise Tax and Its Repeal

The medical device tax imposed a 2.3% levy on the sale price of taxable medical devices sold by manufacturers, producers, or importers in the United States.² A “taxable medical device” meant any device intended for humans under the Federal Food, Drug, and Cosmetic Act, excluding eyeglasses, contact lenses, hearing aids, and other items generally purchased at retail for personal use.

Congress placed the tax on a moratorium starting in 2016, then permanently repealed it through the Further Consolidated Appropriations Act of 2020, signed in December 2019.¹ So the tax was only collected during 2013 through 2015, when it raised roughly $2 billion annually. Manufacturers and importers owe nothing on sales made after the moratorium began.

The PCORI Fee: Health Insurers and Self-Insured Employers

The PCORI fee funds the Patient-Centered Outcomes Research Institute, which studies the effectiveness of medical treatments. Health insurance companies pay it on fully insured plans, and employers pay it directly on self-insured plans.³

The fee equals the average number of covered lives during the plan year multiplied by a dollar rate the IRS adjusts annually. For plan years ending between October 1, 2025, and September 30, 2026, that rate is $3.84 per covered life.⁴ A self-insured plan covering 500 employees and their dependents might owe a few thousand dollars; an insurer writing policies for millions faces a much larger bill.

Payment goes on IRS Form 720 once a year, due July 31 of the year following the end of the plan year.³ Congress extended the fee in December 2019 for another ten years, so it applies to plan years ending before October 1, 2029.⁴

The Branded Prescription Drug Fee: Pharmaceutical Manufacturers

Pharmaceutical manufacturers and importers that sell branded drugs to specified government health programs owe an annual fee based on their share of those sales. The programs include Medicare Parts B and D, Medicaid, TRICARE, and programs run by the Department of Veterans Affairs and the Department of Defense.⁵

Congress sets a fixed industry-wide total each year. For 2019 and every year after, that figure is $2.8 billion. Each company’s share depends on its qualifying sales compared to the total. Companies with $5 million or less in qualifying sales owe nothing. Above that floor, a tiered formula counts a larger share of sales as the dollar amount rises, so the largest manufacturers carry most of the burden. Sales of orphan drugs that qualified for the section 45C credit are excluded, but only until the FDA approves the drug for a non-rare-disease use.⁶

The IRS calculates each company’s preliminary obligation and sends a notice (Letter 4657) that the company can dispute. After the final calculation goes out on Letter 4658, payment is due by September 30 of the fee year.⁵ Companies cannot deduct the fee on their federal income tax returns, which raises the real burden above the face amount.⁷

The Indoor Tanning Services Tax: Salon Operators

The ACA imposed a 10% excise tax on indoor tanning services, paid by salon operators on the amount a customer pays for a session.⁸ Salons typically pass the cost through to customers as a line item, but the salon itself is responsible for collecting and remitting it. The tax is still in effect in 2026.

Salons report and pay the tax quarterly on Form 720, with deadlines at the end of January, April, July, and October.⁸ Phototherapy performed by a licensed medical professional on their own premises, for conditions like psoriasis, seasonal affective disorder, or wound healing, is exempt.⁹

The Health Insurance Provider Fee Is Also Gone

One more ACA levy sometimes gets grouped with the medical excise taxes: the health insurance provider fee. It was collected from insurers based on market share of U.S. health premiums, and the industry-wide total exceeded $15 billion in 2020, the last year it was collected. Congress repealed it for calendar years beginning after December 31, 2020.¹⁰ Insurers no longer owe it.

How the Active Taxes Are Filed

The PCORI fee and the indoor tanning tax both run through Form 720, the Quarterly Federal Excise Tax Return.¹¹ Tanning salons file it every quarter; PCORI payers file it once a year by July 31.³

The branded prescription drug fee works differently. Manufacturers do not self-report the fee amount on Form 720. Instead, they receive their calculation from the IRS and pay by September 30, and they can voluntarily submit Form 8947 with sales data that may affect the calculation.⁶ Missing any of these deadlines can add penalties on top of the fee, which the IRS will waive only if the filer shows reasonable cause.

1
Internal Revenue Service. Medical Device Excise Tax
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GovInfo. 26 USC 4191 – Medical Devices
3
Internal Revenue Service. Patient-Centered Outcomes Research Institute Fee
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Internal Revenue Service. Patient Centered Outcomes Research Trust Fund Fee Questions and Answers
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Medicaid.gov. Branded Prescription Drug Fee Program
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Internal Revenue Service. Annual Fee on Branded Prescription Drug Manufacturers and Importers
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eCFR. 26 CFR Part 51 – Branded Prescription Drug Fee
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Internal Revenue Service. Indoor Tanning Services Tax Center
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Internal Revenue Service. Excise Tax on Indoor Tanning Services Frequently Asked Questions
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Tax Policy Center. What Tax Changes Did the Affordable Care Act Make
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Internal Revenue Service. About Form 720, Quarterly Federal Excise Tax Return