The IRS has issued initial guidance (Notice 2023-52) on the new drug excise tax under Section 5000D that was created as part of the legislation giving Medicare the power to negotiate drug prices.
The Inflation Reduction Act created a new program providing for the Secretary of Health and Human Services to negotiate the prices of a select number of high-cost, single-source drugs covered under Medicare. The new excise tax is meant as a “stick” to encourage participation in the price negotiation program. Manufacturers, producers, or importers of a drug eligible for negotiation will face the excise tax at rates up to 19 times the price of the drug if the companies decline to participate in the program or don’t comply with the maximum fair price.
The tax is exorbitant enough that few companies are expected to pay it, and are instead expected to participate in the program. Major trade groups are also challenging the program and the tax on constitutional grounds.
The IRS rules provide that the tax will apply to sales of designated drugs dispensed, furnished or administered to individuals under the terms of Medicare. The tax will be reported and paid quarterly on Form 720, but semimonthly deposits will not be required.
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