Medicaid Incentive Payments | Washington Department of Revenue

Qualifying hospitals, managed care organizations, and accountable communities of health may claim a B&O tax deduction for certain Medicaid incentive payments as follows.

Qualifying hospitals

A hospital can take a deduction if it meets one of the following:

It is owned by a municipal corporation or political subdivision.
It is affiliated with a state institution.

Since July 28, 2019, these hospitals can take a B&O tax deduction for Medicaid Quality Improvement Program Incentive Payments established through 42 C.F.R. 438.6(b)(2).

Since March 15, 2018, these hospitals can also take a B&O tax deduction for Delivery System Reform Incentive Payments, Medicaid Transformation Project funding, or both sourced from the Medicaid Transformation Project (Section 1115 Medicaid demonstration project number 11-W-00304/0).

Managed care organizations

Since July 28, 2019, managed care organizations can take a B&O tax deduction for Medicaid Quality Improvement Program Incentive Payments received for achieving quality performance standards established through 42 C.F.R. 438.6(b)(2).

Accountable communities of health

The following funds sourced from the Medicaid Transformation Project and received from the Washington State Health Care Authority (Section 1115 Medicaid demonstration project number 11-W-00304/0) are available for deduction:

Since March 15, 2018, an accountable community of health can take a B&O tax deduction for Delivery System Reform Incentive Payments.
Starting July 23, 2023, an accountable community of health can take a B&O tax deduction for Medicaid Transformation Funding.

How do I file my tax return?

You must report these incentive payments under the Service and Other Activities B&O tax classification. You may then claim the appropriate deduction for these payments as follows:

Deduction Effective Date	Deduction	Qualifying hospitals	Managed care organizations	Accountable communities of health
March 18, 2019	Medicaid Quality Improvement Program Incentive Payments	Yes	Yes	No
March 18, 2019	Delivery System Reform Incentive Payments	Yes	No	Yes
July 23, 2023	Medicaid Transformation Funding	Yes	No	Yes

Note: Qualifying recipients of Delivery System Reform Incentive payments, Medicaid Transformation Funding, or both, will claim the deduction under the Delivery System Reform Incentive Payments deduction.

Definitions

Accountable community of health means a regional nonprofit designated by the Health Care Authority to work together with the health care delivery system, health plans, public health, social services, community-based organizations, the justice system, schools, tribal partners, and local government leaders to improve the health equity of their communities as part of Sec. 1115 Medicaid demonstration project number 11-W-00304/0.

Managed care organization means an organization having a certificate of authority or certificate of registration from the office of the insurance commissioner that contracts with the authority under a comprehensive risk contract to provide prepaid health care services to eligible clients under the authority's medicaid managed care programs, including the healthy options program. (RCW 74.60.010)

Note: These deductions do not expire. Persons receiving Medicaid incentive payments are exempt from filing an Annual Tax Performance Report. (RCW 82.32.805 and RCW 82.32.808).

More information

Questions

Email us at Rulings@dor.wa.gov.
Call our telephone information center at 360-705-6705.