Quick Guide Whether FSA Plans Subject to PCORI Fees

• Explains what a Flexible Spending Arrangement (FSA) is and its tax benefits under IRC §106.

• Highlights that FSAs are generally classified as excepted benefits, which is relevant for PCORI fee assessment.

• Most FSAs are not subject to the PCORI fee according to IRS guidance.

• Circumstances that could trigger PCORI fees for an FSA:
  • FSA is not an excepted benefit (covers non-traditional or primary medical expenses).
  • FSA is combined with another self-insured plan under the same sponsor and plan year.
  • FSA participants may be counted toward covered lives for another self-insured plan’s PCORI fee.

• Lists IRS-designated exceptions not subject to PCORI fees: stand-alone dental/vision, HSAs, most FSAs, governmental programs, military/tribal plans.

• Filing deadline is July 31 following plan year end; fee = average covered lives × IRS rate ($3.84 for 2025–2026 plan year).

A Flexible Spending Account (FSA) is a benefit program offered by employers, where employees are allowed to deposit pre-tax funds for qualified healthcare expenses such as deductibles, co-payments, and many more. By doing so, employees are able to lower their taxable income.

An FSA is classified according to IRC § 106 along with guidance from the IRS concerning cafeteria plans and fringe benefits.

Key Takeaways:

• FSAs help employees pay qualified medical costs tax-free.

• Employers administer FSAs under cafeteria plan rules.

• Most FSAs are excepted benefits, which is important for PCORI fee assessment.

In most cases, the PCORI fee does not apply to FSAs since such FSAs come under the umbrella of exceptions. However, in certain circumstances, the FSA may be made liable for the PCORI fee.

Based on the IRS:

As per the Patient-Centered Outcomes Research Trust Fund Fee: Questions & Answers by the IRS, health plans that offer only excepted benefits, such as many FSAs do not pay the PCORI fee. 

Although most FSAs are not subject to PCORI fees, certain situations may make an FSA count as an applicable self-insured health plan under PCORI rules:

1. FSA Is Not an Excepted Benefit

A plan is no longer considered an FSA if it offers benefits other than traditional medical expenses as defined by IRC 213(d).It behaves like primary medical insurance instead of an expense reimbursement program.

Example:

An FSA reimburses non-traditional health expenses that resemble primary medical coverage. In this case, the FSA may be treated as a self-insured plan and trigger PCORI fees.

2. Combined Plan Rule

In the event that an FSA is coordinated with any other self-funded plan, such as HRA or standalone medical plan, and both plans:

Have the same plan sponsor, and The same plan year, all covered individuals can be considered as covered lives.

Example:

An employer offers an HRA that pays deductibles for a self-insured medical plan. Both plans share the same sponsor and plan year. Only one PCORI fee applies to the group, not separately for the FSA or HRA.

3. Counting Covered Lives

Although an FSA may be exempt, FSA participants can still be included by employers in computing PCORI fees for other self-funded plans. However, this will not create a PCORI fee obligation on the part of the FSA.

Example:

An FSA participant is counted toward average covered lives in a self-insured medical plan that owes PCORI. The FSA itself does not owe a separate fee.PCORI Fee Exceptions Relevant to FSAs

✔ Stand-alone dental or vision coverage

✔ Health Savings Accounts (HSAs) and Archer MSAs

✔ Most Flexible Spending Arrangements (FSAs)

✔ Exempt governmental healthcare programs such as Medicare, Medicaid, CHIP

✔ Military and tribal health plans established by federal law

Example:

A standard medical FSA reimbursing qualified medical expenses qualifies as an excepted benefit. It is not subject to PCORI fees. This confirms that unless an FSA provides comprehensive primary medical coverage or fails the excepted benefit tests, it will generally not be a PCORI fee target.

Form 720 Filing Instructions:

Form Number: IRS Form 720, Quarterly Federal Excise Tax Return (annual report for PCORI fee)

Part II Box: Report PCORI Liability (labeled by IRS “133”)

Deadline: July 31 after plan year ends

Formula: Average number of covered lives x IRS Fee

Current Fee Amount (2026): $3.84 × average covered lives for plan years ending Oct.1, 2025–Oct. 1, 2026

Read our guide on how to file PCORI Fee Online.

The majority of FSA plans are generally exempt from PCORI fees based on the fact that they constitute excepted benefits according to IRS regulations. In situations where FSA plans adopt distinctive designs, such as when FSAs are part of another self-insured plan or cover special medical expenses, it is important for the employer to ascertain if the PCORI fees are applicable. 

This ensures that the PCORI fees will be computed and filed accurately without incurring IRS fines. Simple720 provides an approved IRS platform for filing Form 720.

File Your PCORI Fee Online using Simple720 Now!