New accounting rule takes effect in November

As of Nov. 26, the accrual basis accounting rules according to which employers declare payroll taxes as a Medicare allowable cost would be changed, under a regulation being proposed by the Health Care Financing Administration.

According to an analysis by the Washington, DC, office of the Medical Group Management Association, the payroll taxes that providers currently pay to the government are included as allowable costs only in the cost report period in which the payroll is paid. For example, if payroll is accrued in the first year and not paid until the second year, employers may not designate the taxes as a Medicare allowable cost until the second year, when the payroll actually is paid.

Taxes to be paid in year of accrual

HCFA’s new rule would allow an exception when the payroll is accrued in one year and paid in the second year — provided the payment day is regularly scheduled in the second year. As a result, employer-providers could declare the accrued taxes on payroll for the same year in which the payroll was accrued, rather than the year in which it was actually paid.

The bottom line is that practices can now deduct these accrued Medicare payroll tax payments a year earlier.