IRS Issues Final Rule on Medical Device Excise Tax

In keeping with the flood of healthcare-related regulations issued since the November elections, the IRS has released a final rule governing the 2.3% excise tax the Affordable Care Act imposes on manufacturers, importers, and producers of certain medical devices. The rule makes clear that the tax is intended to apply to devices used in professional medical offices settings. The tax will apply to the sale of covered medical devices made after December 31, 2012.

Generally, the rule deems a medical device subject to the excise tax as any device “defined in section 201(h) of the Federal Food, Drug, and Cosmetic Act (FFDCA), that is intended for humans.” Certain items are specifically excluded, including eyeglasses, contact lenses, and hearing aids. In addition, the rule provides a “retail exemption” excluding from the definition “any device of a type that is generally purchased by the general public at retail for individual use.” The rule considers items falling into this category as those medical devices “regularly available for purchase and use by individual consumers who are not medical professionals, and if the design of the device demonstrates that it is not primarily intended for use in a medical institution or office or by a medical professional.”

The final rule contains several examples that provide further guidance on what types of devices will be subject to the excise tax.

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