1. Q: What is a health care surcharge?
A: Some San Francisco businesses have elected to impose a surcharge (i.e. an extra fee or cost) on the goods or services they sell to customers to cover, in whole or in part, the expense of complying with the Health Care Security Ordinance.
2. Q: Does the City of San Francisco require employers to impose surcharges? Or prohibit employers from doing so?
A: Neither. Employers impose such surcharges at their discretion. The City neither requires nor prohibits them.
3. Q. If an employer elects to impose such a surcharge, does the HCSO establish any standards or requirements?
A. Yes. A surcharge provision – along with several other changes – was added to the HCSO by the Board of Supervisors and the Mayor in 2011 and took effect on January 1, 2012.
4. Q. To whom does this provision apply?
A. The provision applies to any Covered Employer who “imposes a surcharge on its customers to cover in whole or in part the costs of the Health Care Expenditure requirement” of the HCSO. The Health Care Expenditure requirement provides that Covered Employers must make Health Care Expenditures to or on behalf of their Covered Employees each quarter.
5. Q. What does the provision do?
A. The provision has two parts.
First, any covered employer who “imposes a surcharge on its customers to cover in whole or in part the costs of the Health Care xpenditure requirement” must report two pieces of information to the OLSE on an annual basis:
• the amount collected from the surcharge for Covered Employee health care, and
• the amount spent on Covered Employee health care.
Employers submit this information to OLSE on the HCSO Annual Reporting Form, which all Covered Employers are required to submit by April 30th of each year.
Second, if the amount collected from the surcharge is greater than the amount spent on Covered Employee’s health care, the employer must irrevocably spend or irrevocably designate the excess surcharges on health care for these Covered Employees.
6. Q. How does an employer “irrevocably” spend or irrevocably designate these funds for its covered employees?
A. Please see the description of Irrevocable Expenditures in Section F.
7. Q. Is there a deadline by which employers must irrevocably spend these funds for its Covered Employees?
A. Yes. The OLSE is providing employers with a full calendar year to irrevocably spend excess surcharges collected. Be aware that an employer must spend the excess surcharge funds in the following year in addition to spending any health care surcharge funds collected in that year.
For example, if an employer collected $50,000 in health care surcharges in 2012, but spent just $40,000 on Covered Employee health care during the year, the employer is required to spend the $10,000 difference on health care for Covered Employees (in addition to spending any health care surcharges collected in 2013) by December 31, 2013.
8. Q. Should my business stop collecting a health care surcharge?
A. It remains at the discretion of any business to decide whether to impose a health care surcharge or not. However, if your business collected excess health care surcharges in a particular year, you may want to consider reducing or eliminating your health care surcharge in the following year to help ensure that you can irrevocably spend the excess surcharges collected in the prior year.
9. Q. How will the OLSE determine whether my business satisfied the obligation to irrevocably spend excess surcharges for my Covered Employees in the following year?
A. The OLSE will make this determination based on the information your business provides on the Annual Reporting Form you submit to our office by April 30th of each year plus any supplemental information we may request.
10. Q. Are businesses supposed to charge sales tax on any such health surcharge?
A: The OLSE does not enforce tax laws nor provide tax advice. However, on May 1, 2009, the State Board of Equalization issued a Special Notice (PDF) entitled “Sales Tax Applies to the San Francisco Health Care Security Ordinance (SFHCSO) Surcharge.”
If you have further questions about the taxability of surcharges, please call the State Board of Equalization’s Taxpayer Information Section at (800) 400-7115.
