Client Question: Are Electronic Health Record incentive payments are taxable?

Yes!  A popular belief is that the incentive payments made to eligible professionals and hospitals that adopt, implement, upgrade or otherwise demonstrate “meaningful use” of certified electronic health records (EHR) are not taxable.  This is not the case.  In fact, if the incentive payment is for $600 or more, the agency making the payment is responsible for reporting the payment on Form 1099-MISC. This means the IRS will be tracking EHR incentive payments and enforcing the reporting of these payments as taxable income.

Another rumor is that EHR incentive payments should be considered reimbursements of expenses incurred to establish the EHR system.  Again, this is incorrect.  The incentive payments should be included in gross income.

There is one exception to the general rule that EHR incentive payments are taxable.  Some eligible professionals receiving an EHR incentive payment may be required to give the payment to another practice or group.  In this case, they are not allowed to keep the incentive payment. EHR incentive payments are not required to be included in gross income if the eligible professional (1) is receiving the payment as an agent or conduit of another practice or group, and (2) turns the payment over to another practice or group as required.  Note that in this case, the agency issuing the payment is still required to send the 1099-MISC to the original recipient of the incentive payment regardless of whether the funds are assigned or transferred to another practice or group or retained by the provider.  The original recipient of the funds would then bear the information reporting responsibility for any payments transferred to another entity.

If you have any questions, a ShindelRock tax professional would be happy to help.