IRC 4371 and Swiss Health Insurance: Do You Actually Owe the 1% Excise Tax?

If you've stumbled across IRC 4371 while researching your US tax obligations in Switzerland, you may be picturing another quiet compliance trap layered on top of FBAR and FATCA. Here's the direct answer: for the vast majority of Americans paying Swiss KVG (mandatory basic health insurance) or VVG (supplementary health insurance) premiums, this excise tax does not apply — and no filing is required. The reason is a specific treaty mechanism most people, including many advisers, have never heard of. Let's walk through why the tax exists, who it's actually aimed at, and how to confirm your own situation.

What IRC 4371 Actually Taxes

IRC 4371 is a federal excise tax on insurance premiums paid to a foreign insurer — meaning an insurance company not organized under US law. It was designed decades ago to level the playing field between US and foreign insurers by taxing premiums that flow overseas rather than to a domestic carrier. The rate depends on the type of coverage: life, sickness, and accident insurance premiums are taxed at 1% under 26 USC § 4371(2), while casualty insurance premiums are taxed at a steeper 4% under § 4371(1). Swiss KVG and VVG health premiums fall into the 1% sickness-and-accident category, which is why this rule shows up at all in conversations about health coverage in Switzerland.

Who Is Legally on the Hook to Pay It

The tax isn't automatically collected by the insurer the way US payroll or sales taxes are. Under the implementing regulation, 26 CFR § 46.4374-1(b), liability falls on whoever pays the premium directly to the foreign insurer — or to a broker acting on the insurer's behalf. If that person doesn't pay the tax, IRC 4374 creates a backup chain of liability: anyone who makes, signs, issues, or sells the policy, or anyone for whose benefit the policy exists, can be pulled in to satisfy it. In practice, for an individual policyholder, this means the excise tax question lands squarely on you as the person writing the premium check — which is exactly why it's worth understanding rather than ignoring.

The Treaty Exemption That Changes Everything

Here's where the story gets more reassuring. Article 2(2)(b) of the US-Swiss tax treaty exempts premiums paid to a Swiss insurer from the IRC 4371 excise tax, provided two conditions are met: the Swiss insurer doesn't reinsure the underlying risk with a non-treaty entity, and the insurer satisfies the treaty's Limitation on Benefits provision under Article 22. To make this exemption usable in practice, the IRS created a formal mechanism under Rev. Proc. 2003-78 (later updated by Rev. Proc. 2015-46): a Swiss insurer can apply for a closing agreement with the IRS that formally confirms its exemption from the tax going forward.

In other words, the excise tax exists in the code, but for most policies written by the large, well-established Swiss health insurers, an invisible administrative layer already resolves the question in your favor. This is different from saying the tax doesn't apply to Swiss premiums in general — it means the specific carriers most Americans in Switzerland actually use have already handled the treaty paperwork on the institutional side.

Excise Tax vs. Deductibility: Two Separate Questions

It's worth being precise here, because these two issues get conflated constantly. Whether you owe the IRC 4371 excise tax is a question about the premium transaction itself — is it flowing to a foreign insurer without a treaty exemption? Whether you can deduct your premium on your US return is an entirely different question about itemized deductions, and the short answer is that KVG premiums are not deductible on your US tax return, and neither are VVG premiums — they're treated as ordinary personal expenses, not medical deductions that clear the relevant threshold. If you're evaluating what your supplementary coverage actually does for you financially, Swiss VVG Supplementary Insurance: What Americans Need to Know walks through the coverage side of that question. And if you're trying to plan around rising premium costs generally, Swiss Health Insurance Premiums Rising 5% in 2027: What Americans Need to Know is a useful companion piece.

How Form 720 Filing Works, If You Ever Need It

When the excise tax does apply — because a carrier lacks a closing agreement, or because you're dealing with a smaller or niche insurer — it's reported on IRS Form 720, the Quarterly Federal Excise Tax Return, under IRS No. 30 for foreign insurance taxes. As the name suggests, this is filed quarterly, not annually alongside your Form 1040. The tax is calculated as a percentage of the premium paid during that quarter and remitted directly with the return.

1. Confirm which entity actually issued your policy — the parent Swiss insurer name, not just the local branding you see on your bill.
2. Ask the insurer (or your broker) directly whether they hold an active IRS closing agreement under Section 4371 — many will confirm this in writing on request.
3. If a closing agreement is confirmed, keep that confirmation with your tax records; no Form 720 filing is required for that premium.
4. If no closing agreement exists, or you can't get confirmation, that's the point to get a qualified opinion before assuming either way.

Why This Rarely Becomes a Real Problem — And When It Might

Tax professionals who work with Americans abroad consistently report that IRC 4371 filings for Swiss health insurance are uncommon in practice, precisely because the major carriers have already done the treaty paperwork. The genuine risk sits with smaller or specialty insurers that never applied for a closing agreement — the tax still legally applies there, and simply not knowing about it doesn't create an exemption where none exists. This is a good example of why Swiss insurance products in general deserve a second look through a US-person lens; the excise tax is just one item on a longer list of ways Swiss policies interact unexpectedly with US reporting rules, covered in more depth in The Hidden US Tax Traps in Swiss Insurance Policies for Americans.

None of this is a call to action or a reason for concern about your existing coverage — it's a reason to ask one specific, answerable question of your insurer or broker: does this carrier hold a Section 4371 closing agreement? For most people with standard KVG and VVG coverage through a major Swiss carrier, the answer resolves the matter completely. For anyone with a less common carrier, or a bundled policy that mixes health with an investment or savings component, this is exactly the kind of cross-border detail worth confirming with someone who understands both the US and Swiss sides before you assume either way.