IRS: EHR Incentive Payments Are Taxable

The IRS has taken the position that EHR incentive payments are taxable. Because the IRS has a long history of defining what is subject to tax broadly, this is not surprising. However, some of the consequences of this position could be problematic for physicians. Many physicians turn over their payments to a group practice. Physicians doing this could be in for an unpleasant surprise.

Under tax law, taxpayers cannot avoid tax merely by turning income over to somebody else. Thus, suppose a physician earns an EHR incentive payment and turns it over to her practice. Depending on how the plan is structured, she might still have to include the EHR payment on her personal tax return. The IRS allows an important exception. If the physician receives the payment as an agent of the group practice, she does not have to report it on her personal tax return. Because of this issue, physicians who have received or will receive EHR incentive payments should plan to deal with the tax consequences of those payments.

© 2013 Parsonage Vandenack Williams LLC

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