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Tax experts provide insight on meaningful use payments and tax write-offs for EHR-related investments. What do practices have to know before April 15th?
Whether meaningful use is dead or alive, physicians continue to receive incentive payments - and they should be treating these payments as taxable income, said Monica Coakley, principal of Washington National Tax at KPMG, an audit, tax, and advisory firm.
CMS will issue 1099-Misc & Independent Contractors forms to all physicians who receive incentive payment checks, and copies of the 1099s will also be sent to the Internal Revenue Service (IRS), she said. Still, it’s not so cut and dry - particularly if physicians have a contractual obligation to turn over the payments to the entity that owns the physician practice, whether that’s a larger group or even a hospital. In these instances, physicians are really acting as “conduits” for the incentive payments and the 1099 forms should be issued to the entity that actually receives the payments from CMS, noted Coakley.
Beyond meaningful use payments, Mark Estroff, a principal at PYA, a healthcare consulting firm, has good news when it comes to tax write offs associated with EHRs and related investments in hardware, computers, and training. The U.S. Tax Code says entities can write-off hardware or software purchases over three to five years, advises Estroff.
Still, Estroff noted that there are exceptions to this general rule, which follow:
Tax write-offs for hardware and computers. He advised practices to break out their EHR investments into three parts: hardware, software, and training. In the hardware area, there are provisions in the federal tax code that were recently made retroactive that allow practices to purchase up to $500,000 worth of hardware and write it off in the first year.
EHR software customization and tax write-offs. A notable exception to the three-to-five year rule is if the practice did extensive customization to the “off the shelf” software to cater specifically to its needs, advised Estroff. Still, he notes that this is a fairly rare situation. For the most part, it would only really be applicable if a practice built its own EHR from the ground up.
Tax write-offs for EHR training. While the perspective Estroff has provided pertains to federal tax rules, he calls out the tax write-offs practices can utilize in the state of Georgia, where he advises clients on tax matters. As with other business in the state, physician practices in Georgia can avail themselves of a “retraining” tax credit. What that means is if your practice upgrades its technology and needs to train employees to use that new technology, the practice can get a tax credit for a portion of the cost of that training, within certain limits. The tax credit could range from $5,000 to $6,000 for small practices to $200,000 for a very large practice, he noted.
While the retraining tax credit is specific to practices in the state of Georgia, Estroff noted that approximately 30 states across the country provide similar tax credits for businesses that want to retrain employees.