A “Dear Colleague” letter issued by the Centers for Medicare and Medicaid Services (CMS) late on November 14, 2025 clarifies for states clarify implementation of the Medicaid provider tax provisions included in HR 1.

HR 1, enacted July 4, 2025, made several changes to Medicaid provider taxes, including:

• setting a zero percent threshold for provider taxes that were not previously enacted or imposed by a state prior to July 4, effectively prohibiting the use of new provider taxes;
• phasing down the hold harmless cap down to 3.5 percent for expansion states; and
• tightening the definition of “generally redistributive,” making it more difficult for states to impose non-uniform or non-broad-based provider taxes.

CMS says in an explanatory press release, that the letter, linked in the release, provides “key program elements and preliminary guidance” on the law’s sections 71115, which contains changes to the hold harmless threshold and 71117, which limits a state’s ability to obtain waivers from the uniform tax requirement.