Seyfarth Synopsis: New IRS FAQs provide helpful clarifications on eligible medical expenses for HSAs, FSAs, MSAs, and HRAs (including the conditions for reimbursement of those gym memberships).
On March 17, the Internal Revenue Service (IRS) posted a new set of Frequently Asked Questions (FAQs) aimed at individual taxpayers, addressing whether certain medical expenses related to nutrition, wellness, and general health may be paid or reimbursed from health savings accounts (HSAs), health flexible spending arrangements (FSAs), Archer medical savings accounts (MSAs), and health reimbursement arrangements (HRAs) (collectively, “Accounts”).
Notably, the list of eligible expenses differs slightly from the medical expenses that are deductible by a taxpayer under Section 213(d) of the Internal Revenue Code (Code). Although Internal Revenue Service (IRS) Publication 502, Medical and Dental Expenses addresses the deductibility of various medical and dental expenses, it may not be relied upon for answers to all questions regarding eligible Account expenses. Therefore, these FAQs specifically addressing Account-eligible expenses are particularly helpful to individual taxpayers who are Account holders, and to the benefits practitioners who respond to their questions. (Additional information about these Accounts also may be found in IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.)
The FAQs reiterate the definition of medical expenses found in Publication 502 and in Code § 213(d):
“Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.”
In addition, “[medical] expenses must be primarily to alleviate or prevent a physical or mental disability or illness” rather than being “merely beneficial to general health.”
The FAQs then provide the following specific guidance on whether various expenses are eligible for payment or reimbursement from Accounts.
|FAQ Number(s)||Expense(s)||Eligible Expense(s) for Account Purposes?|
|1, 2, 3||dental, eye, and physical exams||Yes, because these exams “[provide] a diagnosis of whether a disease or illness is present.”|
|4, 5, 6||programs to treat drug-related substance or alcohol use disorders and smoking cessation programs||Yes, because these programs each treat a disease (a substance, alcohol, or tobacco use disorder).|
|7||therapy||Maybe—if the therapy is treatment for a disease; “therapy to treat a diagnosed mental illness is [eligible], but an amount paid for marital counseling is not.”|
|8, 9||nutritional counseling and weight-loss programs||Maybe—only if the counseling or program is used “[to treat] a specific disease diagnosed by a physician [(e.g., obesity, diabetes, hypertension, or heart disease)].”|
|10||gym membership||Maybe—“only if the membership was purchased for the sole purpose of affecting a structure or function of the body (such as a prescribed plan for physical therapy to treat an injury) or the sole purpose of treating a specified disease diagnosed by a physician (such as obesity, hypertension, or heart disease).”|
|11||swimming or dancing lessons or other exercise for general health improvement||No, because these are “only for the improvement of general health,” and so are not eligible expenses “even if recommended by a doctor.”|
|12||food or beverages purchased for health reasons (including weight loss)||Maybe—only if all three of the following are true with respect to the food or beverage: (i) it “doesn’t satisfy normal nutritional needs,” (ii) it “alleviates or treats an illness,” and (iii) its need “is substantiated by a physician.”|
If these three requirements are met, only “the amount by which the cost of the food or beverage exceeds the cost of a product that satisfies normal nutritional needs” is eligible.
|13||over-the-counter drugs and medicine (even if not prescribed) and menstrual care products||Yes, these are eligible expenses for Account purposes (for expenses incurred after 2019, under changes made by the CARES Act).|
|14||nutritional supplements||Maybe—“only if the supplements are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician.”|
What should you do with this new guidance? Because each of these FAQs is dated, we suspect (and hope) that this is a page that the IRS intends to maintain, and so we suggest a bookmark to this page for your reference and to watch for future developments. We also suggest including a link to these FAQs in your summary plan descriptions (SPDs) and other plan communications in which any of these Accounts are discussed. You might also confirm with your Account service providers that the information provided in these FAQs is consistent with their administration.