IRS confirms eyeglasses, CLs exempt from new device tax

January 8, 2013

Affirming yet another AOA health reform victory, the federal government last month released final regulations confirming eyeglasses and contact lenses is exempt from the new 2.3 percent excise tax on most medical devices.

Going into effect Jan. 1, 2013, the new tax is imposed on most types of medical devices and was originally included in the 2010 health overhaul as a means to help raise nearly $30 billion for the law’s expansion of health insurance coverage.

When the provision was originally proposed in Congress, the AOA convinced lawmakers to include a specific exemption for eyeglasses and contact lenses.

As supported by the AOA, section 4191(b)(2) of the Internal Revenue Code, as enacted in the Affordable Care Act, specifically provides that eyeglasses and contact lenses are not taxable medical devices under this provision.

In promulgating the final rule, the Internal Revenue Service (IRS) explained that devices generally purchased by the general public at retail for individual use, such as eyeglasses and contact lenses, would be exempt from the tax.

The IRS included a partial list of factors to consider, in their totality, whether other devices qualify for the exemption. The IRS also outlined a safe harbor for categories of devices that automatically fall within the retail exemption, including prosthetics that do not require implantation or insertion, and certain over-the-counter items.

Importantly, the new excise tax is to be paid by manufacturers, importers, and producers of taxable medical devices, not the purchaser of such devices. Despite this arrangement, the AOA remains concerned that the cost of ophthalmic and other equipment used in optometry practices may rise as a result.

Currently, there are ongoing and bipartisan efforts to repeal or delay the new excise tax, particularly by lawmakers from states with a strong device manufacturer presence.

Republicans and some Democrats in the House of Representatives have joined together over the last year on efforts to repeal the new tax.

Recently, Democrats in the upper chamber have voiced concerns over the impact of the new tax on device makers as well as patients. Sens. Amy Klobuchar (D-Minn.) and Kay Hagan (D-N.C.) penned a letter late last year to Senate Majority Leader Harry Reid (D-Nev.) urging a one-year implementation delay of the new excise tax. While heartened that the federal government has affirmed one of the AOA’s key health reform victories, the AOA will continue to monitor efforts in Congress to address this issue as well as the potential impact on optometry practices.

AOA members with questions or concerns should contact the AOA Washington office at 800-365-2219 or email ImpactWashingtonDC@aoa.org.

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