IRS Could Cut Physician Medicare Income Starting in 2012
The Internal Revenue Service (IRS) could withhold 3 percent of physicians’ Medicare payments beginning in 2012.
A 2005 tax law requires the IRS to start withholding this percentage of payments to contractors that do work for federal, state, or local governments. The reduction would affect physicians, hospitals, and others who bill Medicare. The withholding would be in addition to possible cuts required if the sustainable growth rate Medicare physician payment formula is not repealed.
The American Medical Association (AMA), Medical Group Management Association (MGMA), the Federation of American Hospitals, and America's Health Insurance Plans are pushing for a repeal of the law.
The withholding would be applied to physicians' tax obligations for the year, and the remainder would be refunded the next year when physicians file their tax returns. The IRS is expected to explain how it will keep track of the money and refund overpayments in a final rule that will be issued in early 2010.
The law was passed after the Governmental Accountability Office (GAO) found in 2005 that about 33,000 government contractors owe $3 billion in unpaid federal taxes. A later 2007 study found that about 5 percent of physicians and others who receive payments from Medicare owe significant back taxes.
The groups opposed to the law argue that the federal payment levy program—which reduces Medicare payments by 15 percent until overdue taxes are paid or a payment arrangement is made—is more appropriate.
The US House of Representatives passed a repeal of the law in 2009, but it was rejected by the Senate. The two chambers agreed to delay the effective date from January 2011 to January 2012.
Last Updated: 1/28/2010