Dentists: Avoid Common Pitfalls of MinnesotaCare Tax
Most dental practices in Minnesota are familiar with MinnesotaCare tax (MNCare), the 2 percent tax health care providers are required to pay quarterly to the state. While the concept seems fairly simple and easy to calculate, some dentists have encountered problems with auditors because they do not know the nuances of this tax.
“Since state audits are increasing, it is important to understand the MNCare tax details so you’re ready to defend yourself during an audit,” says Rachel King, a health care manager at CliftonLarsonAllen. “The benefits of understanding this tax also go beyond avoiding audit penalties — dentists who have a thorough understanding of MNCare tax may be eligible for exemptions and adjustments that can save them significant tax dollars.”
Gross receipts adjustments
MNCare tax is based on gross receipts collected within a calendar year. Before you record this on Line 1 of your annual tax return, remember to make the following adjustments to your gross receipts amount:
- Collection agency fees. When you receive money from the collection agency, you must include the gross amount you asked the agency to collect, rather than the amount received from the collection agency after they deduct their fee. Agencies generally deduct their fees before paying you, but some providers do not realize they need to adjust for the actual collection amount.
- Free or reduced services. Add the standard service fee if you provide dental care for free or at a reduced price (this generally applies to employees, friends, or family).
- Refunds. Subtract refunds given to patients or insurance companies.
MNCare tax exemptions for dentists include:
- Medicare (Line 2)
- Other governmental payments (not including Medicaid, MinnesotaCare, US Veterans Administration, Workers Compensation, PMAP, MCHA) (Line 3)
- FEHBA and TRICARE (Line 4)
Legend drug purchase exemption
While the exemptions listed above are quite common, the legend drug purchases exemption (Line 8) is often overlooked.
This exemption involves the amount paid for drugs or gases required by federal law to be sold or dispensed in a container that states, “Caution: Federal law prohibits dispensing without a prescription” or “RX only.” They are classified as a drug by the FDA, rather than a device. Common examples of these in a dental practice are oxygen and nitrous oxide.
You can take this exemption if these supplies were purchased from a wholesaler who paid the MNCare tax. Check your invoice for an additional tax that equals 2 percent of the purchase price.
Find out how much you can use in the exemption with this calculation:
(Gross receipts (Line 1) − All other exemptions (Lines 2-7)) ÷ Gross receipts × Total eligible legend drug purchases = Exempt legend drugs (Line 8)
“Remember to carefully document all of your calculations, and save the documentation for seven years in case of an audit,” King notes.
How we can help
We can help you prepare for an audit and review your findings to make sure they are correct. We can also review MNCare tax returns and data from your practice management systems to see if you paid the proper tax amount in prior years. In addition, we can determine if you are eligible for any exemptions you have not been taking — some practices can get refunds from the three prior years if exemptions have been missed.