Medical Practice Accounting in NJ: Payers, Tax and 2027 Medicare

What medical practice accounting covers

A medical practice runs on money that arrives late and from many payers. Medicare, Medicaid, commercial plans and patients each pay on their own schedule and their own rules. Good accounting keeps those streams apart, so the owners can see which payer is slow, which code is short-paid and how much cash is really available for payroll.

The work has three layers. Bookkeeping records every charge, payment, refund and bill. Accounting turns that into monthly statements and reconciliations. Tax and planning work decides the entity, the accounting method, owner pay and retirement contributions. Dental practices share much of this; if you own a dental office, the dental practice accounting guide covers its version.

Dental practice owner? Use the dental practice accounting guide and readiness checklist instead.

The 2027 Medicare fee schedule: what CMS proposed

Medicare pays physicians from the Physician Fee Schedule. CMS explains that relative value units for each service “become payment rates through the application of a conversion factor,” with geographic adjusters applied too. So when the conversion factor moves, fee schedule payments move with it.

On July 14, 2026, CMS issued its proposed rule for 2027. The fact sheet says the one-year 2.50% increase that Public Law 119-21 gave for 2026 “will no longer be in effect for CY 2027.” The proposed conversion factor for physicians who are not qualifying APM participants is $32.84, “a projected decrease of $0.56 (-1.68%)” from $33.40. For qualifying APM participants it is $33.17, down $0.40 (-1.19%) from $33.57.

These are proposed numbers. When we checked CMS's regulation notices page on October 31, 2026, the newest 2027 entry was still the proposed rule, CMS-1848-P. Check the final rule before you budget.

• How we worked it: $300,000 × $32.84 ÷ $33.40 = $294,970.06. For a qualifying APM participant: $300,000 × $33.17 ÷ $33.57 = $296,425.38.
• The example holds every service, relative value unit and geographic adjuster at its 2026 level. Real 2027 payments also change with the RVU changes CMS proposed, so your own result will differ by service.
• Only Medicare fee-schedule revenue is affected directly. Your accountant should run this against your own payer mix, not the practice's total revenue.

Reconcile the revenue cycle every month

The money a practice earns passes through four records: the charge in the practice software, the claim, the payer's remittance and the bank deposit. Each month, the four should agree. When they do not, the gap is usually a denied claim, a short payment, a refund or a deposit posted to the wrong period.

Medicare sets a hard edge on this work. CMS's claims processing manual says fee-for-service claims “must be filed to the appropriate Medicare claims processing contractor no later than 12 months, or 1 calendar year, after the date the services were furnished.” An aging report that sorts unpaid Medicare claims by date of service shows which ones are close to that limit.

Insurers also report what they paid you. The IRS's 2026 instructions for Form 1099-MISC tell payers to report in box 6 “payments of $2,000 or more” made to a physician or other provider of medical or health care services, including payments by medical and health care insurers. The same instructions say the reporting threshold rose to $2,000 for tax years beginning after 2025.

• Post every remittance against its claim, not as one lump of income.
• Keep a list of denied and short-paid claims with the reason and the date of service.
• Each January, add up the box 6 amounts on the Forms 1099-MISC you receive and compare each payer's total with your books.
• If the practice is a corporation, the IRS tells payers to list the corporation, not the individual physician, as the recipient.

Cash or accrual: which method a medical practice can use

The cash method records income when it is received and expenses when they are paid. The accrual method records them when they are earned or owed. A practice can file its taxes on one method and still watch accrual-style figures, such as receivables by payer, to manage the business.

IRS Publication 538 (revised January 2022) says a corporation that meets a function test and an ownership test “is a qualified PSC and can use the cash method.” The function test is met when “at least 95% of its activities are in the performance of services in the fields of health,” law, accounting and a few other fields. The ownership test asks whether substantially all of the stock is owned by employees performing those services, among other qualifying owners.

Other corporations and partnerships can generally use the cash method if they meet a gross receipts test that the IRS indexes for inflation. Ask your accountant which test the practice relies on, and keep the answer in writing.

Entity, owner pay and the QBI deduction

How the practice is organized changes how the owners are paid and taxed. For an S corporation, the IRS says: “S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee.” Among the factors it lists are training and experience, duties and responsibilities, and time and effort devoted to the business.

Physician practices are also limited on the qualified business income (QBI) deduction. The Form 8995-A instructions name health, “including physicians, pharmacists, nurses, dentists,” and similar professionals, as a specified service trade or business (SSTB). Above a taxable-income threshold plus a phase-in range, no QBI from an SSTB counts. The table shows the 2025 figures; the IRS adjusts them for later years.

New Jersey adds its own pass-through choice, the Business Alternative Income Tax. Who owns a medical practice and how is a separate legal question; ask a healthcare attorney before changing ownership or entity.

For the New Jersey pass-through election, read the NJ BAIT guide, which quotes the Division of Taxation's rates and deadlines.

Year-end checklist for practice owners

December is when most of the owner's choices can still change the 2026 numbers. Retirement contributions are one of the biggest. The IRS announced that “the amount individuals can contribute to their 401(k) plans in 2026 has increased to $24,500.” The catch-up limit for employees 50 and over is $8,000, and for ages 60, 61, 62 and 63 it is $11,250 in most 401(k) plans.

• Run the payer-by-payer Medicare math above against your own 2026 numbers and budget 2027 once CMS posts the final rule.
• Review accounts receivable for claims you will not collect and for Medicare claims close to the 12-month limit.
• If the practice is an S corporation, confirm shareholder-employee pay before the last payroll of the year.
• Decide on the New Jersey BAIT election with your accountant.
• Plan January estimated payments for the owners.

For the wider December list, see the year-end tax planning checklist.

For New Jersey's due dates, see the NJ estimated tax payments guide.

HIPAA: your accountant may be a business associate

A practice's financial records often carry patient information: names on remittances, dates of service, procedure codes. HHS defines a business associate as a person or organization that performs certain functions for a covered entity involving protected health information (PHI). Its own example list includes a “CPA firm whose accounting services to a health care provider involve access to PHI.”

So before an accountant sees remittances, aging reports or billing exports, decide whether the engagement involves PHI. If it does, settle the business associate agreement first, and agree how files will be shared. Do not send patient information through ordinary email or through this site.

How long to keep the records

The IRS's records page sets the federal minimums. The general rule is to keep records for 3 years. Keep employment tax records “for at least 4 years after the date that the tax becomes due or is paid, whichever is later.” Keep records for 7 years if you claim a loss from worthless securities or a bad debt deduction, and for 6 years if you leave out income of more than 25% of the gross income shown on the return.

These are tax rules only. Medical records, payer contracts and HIPAA documentation can carry their own retention rules, so ask your accountant and your healthcare attorney for one written schedule.

Questions to ask a medical practice accountant

A good fit has worked with practices like yours and can explain its work in plain terms. Ask these questions before you sign an engagement letter.

• Which payers do your medical practice clients bill, and will you report revenue by payer each month?
• How will you reconcile claims, remittances and deposits, and who follows up on denials?
• Which accounting method does the practice use for tax, and which test lets it use that method?
• If we are an S corporation, how will you document reasonable compensation for each physician-owner?
• Will the engagement involve patient information, and will you sign a business associate agreement?
• Which state issued your CPA license, and does your firm hold the permit it needs to serve a New Jersey practice?

To confirm a license in New Jersey's own record, use the NJ CPA license lookup guide.

One CPA profile on this site, Spiro Leunes, CPA of MRL Advisory Group, shows that MRL's website describes accounting, tax, advisory and practice-acquisition services for medical practices. The profile lists a New York CPA license and does not claim a New Jersey license; it is not an endorsement.

Questions to ask before acting.