Medicare Program; Revision to Accrual Basis of Accounting Policy

Medicare policy provides that payroll taxes that a provider becomes obligated to remit to governmental agencies are included in allowable costs only in the cost reporting period in which payment (upon which the payroll taxes are based) is actually made to an employee. Therefore, for payroll accrued in 1 year but not paid until the next year, the associated payroll taxes are not an allowable cost until the next year. This final rule provides for an exception when payment would be made to the employee in the current year but for the fact the regularly scheduled payment date is after the end of the year. In that case, the rule requires allowance in the current year of accrued taxes on payroll that is accrued through the end of the year but not paid until the beginning of the next year, thus allowing accrued taxes on end-of-the year payroll in the same year that the accrual of the payroll itself is allowed. The effect of this rule is not on the allowability of cost but rather only on the timing of payment; that is, the cost of payroll taxes on end-of-the-year payroll is allowable in the current period rather than in the following period.