# 2026-14897: Feds Rewrite Baffling Medicaid Tax Loophole Rules 2026-14897, Medicaid Program; Amending the Indirect Hold Harmless Threshold of Health Care-Related Taxes, is a Federal Register proposed rule from Health and Human Services Department, Centers for Medicare & Medicaid Services published 2026-07-23, effective 2026-10-01; deemed significant under Executive Order 12866; PRIA reads it as touching household money (as of 2026-11-04). - Canonical: https://policyrisk.com/federal-register/2026-14897 - As of: 2026-11-04 - Plain-text twin of the page above; the HTML and this file carry the same facts. ## Facts - Document number: 2026-14897 - Title: Medicaid Program; Amending the Indirect Hold Harmless Threshold of Health Care-Related Taxes - Type: Proposed Rule - Agencies: Health and Human Services Department; Centers for Medicare & Medicaid Services - Citation: 91 FR 46562 - Published: 2026-07-23 - Effective: 2026-10-01 - Comments close: 2026-09-21 - Significant: yes (OIRA_API) - Touches household money: yes - Regulation identifier numbers: 0938-AV93 - Last updated: 2026-11-04 ## In one line Feds Rewrite Baffling Medicaid Tax Loophole Rules ## Summary Starting October 1, 2026, new rules will change how states handle health care-related taxes under Medicaid. These changes set clear limits on tax amounts based on 2025 levels and will gradually lower those limits in some states by 2027. States and taxpayers should get ready for tighter rules and better oversight that could affect tax collections and Medicaid funding. ## Abstract This proposed rule would revise standards for determining whether an indirect hold harmless arrangement exists for a health care- related tax. This proposed rule is necessary to implement a provision in the "One Big Beautiful Bill Act," herein referred to as the "Working Families Tax Cut (WFTC) legislation," which established new indirect hold harmless thresholds for health care-related taxes. Currently, the threshold for a State's collection of tax revenues is no more than 6 percent of net patient revenue attributable to the assessed permissible class of health care items or services. Effective October 1, 2026, the WFTC legislation generally sets the threshold equal to the applicable percent of net patient revenue attributable to taxes imposed as of July 4, 2025. Effective October 1, 2027, the WFTC legislation also requires a phase down of the hold harmless threshold in expansion States. Apart from establishing the new threshold in regulation and proposing related changes and enhancements to existing processes, we propose to sunset a secondary prong to the indirect hold harmless determination to ensure the thresholds determined as of July 4, 2025, serve as the maximum permissible level. Finally, this rule proposes to add a new permissible class to enhance CMS oversight of health care- related taxes. ## Effects PRIA read - New 2025-based Hold Harmless Threshold: cost, medium. Starting October 1, 2026, a State’s indirect hold harmless threshold will equal the percent of net patient revenue attributable to taxes that the State or locality had enacted and imposed as of July 4, 2025. If a State had not enacted and imposed a tax for a permissible class by July 4, 2025, the a… - Phase-Down for Expansion States: cost, medium. For Expansion States, beginning in Federal fiscal year (FFY) 2028 the hold harmless threshold will be the lower of the July 4, 2025 calculated percent or a phased-down percent that is 5.5 percent in FFY 2028, then reduced by 0.5 percentage points annually until reaching 3.5 percent in FFY 2032. The… - Sunset of Secondary (75/75) Prong: cost, medium. The proposed rule would sunset a secondary prong of the indirect hold harmless test (commonly referred to as the 75/75 test) so that the thresholds calculated as of July 4, 2025 serve as the maximum permissible levels. CMS states this change is intended to ensure the July 4, 2025 thresholds are the… - New Permissible Class: Health Insurers: mixed, medium. The rule would add a new permissible class for "services of health insurers" (other than managed care organizations) in Sec. 433.56(a)(19), so taxes on health insurers (for example, based on premium revenue or covered lives) would be evaluated as health care-related taxes and subject to statutory r… ## Related documents - [2026-22381](https://policyrisk.com/federal-register/2026-22381): Medicare and Medicaid Programs; Organ Procurement Organizations Conditions for Coverage: Revisions to the Conditions for Coverage, 2026-11-03 - [2026-22194](https://policyrisk.com/federal-register/2026-22194): Medicare Program; CY 2027 Changes to the End-Stage Renal Disease (ESRD) Prospective Payment System, Acute Kidney Injury (AKI) Dialysis Paym…, 2026-10-30 - [2026-21420](https://policyrisk.com/federal-register/2026-21420): Medicare Program; Implementation of Sections 6219, 6220, and 6224 of the Consolidated Appropriations Act, 2026, 2026-10-20 - [2026-20281](https://policyrisk.com/federal-register/2026-20281): Global Benchmark for Efficient Drug Pricing (GLOBE) Model, 2026-10-02 - [2026-20131](https://policyrisk.com/federal-register/2026-20131): Medicare Program; Inpatient Rehabilitation Facility Prospective Payment System for Federal Fiscal Year 2027 and Updates to the IRF Quality…, 2026-10-01 - [2026-19959](https://policyrisk.com/federal-register/2026-19959): Medicare Program; Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities; Updates to the Quality Reporting Prog…, 2026-09-30 ## Sources - [2026-14897 on federalregister.gov](https://www.federalregister.gov/documents/2026/07/23/2026-14897/medicaid-program-amending-the-indirect-hold-harmless-threshold-of-health-care-related-taxes) - [2026-14897 as published (PDF)](https://www.govinfo.gov/content/pkg/FR-2026-07-23/pdf/2026-14897.pdf) ## Related - [Previous: 2026-14891, Air Plan Approval; Pennsylvania; Revision to Source-Specific Reasonably Availab…](https://policyrisk.com/federal-register/2026-14891) - [Next: 2026-14902, Air Plan Approval; Pennsylvania; Harrisburg-Lebanon-Carlisle-York Maintenance A…](https://policyrisk.com/federal-register/2026-14902) - [All Federal Register documents](https://policyrisk.com/federal-register) Source: PRIA, https://policyrisk.com/federal-register/2026-14897 (as of 2026-11-04).