IRS Alerts on Health and Wellness Deductions: What You Need to Know
The IRS has issued important reminders regarding health and wellness deductions, emphasizing that many personal health-related expenses do not qualify for tax breaks. If you have an FSA (Flexible Spending Account), HSA (Health Savings Account), or MSA (Medical Savings Account), you cannot deduct or be reimbursed for general wellness expenses under U.S. tax law. These types of purchases are typically not considered medical expenses, and therefore, do not meet the criteria for reimbursement through these tax-advantaged accounts.
Understanding Health and Wellness Deductions
The IRS is alerting taxpayers that they may be misinterpreting the rules surrounding reimbursements for health and wellness costs through flexible spending arrangements and similar programs. This extends to various health savings accounts and plans, including:
- Health Savings Accounts (HSAs)
- Health Reimbursement Arrangements (HRAs)
- Medical Savings Accounts (MSAs)
According to IRS Commissioner Danny Werfel, while legitimate medical expenses are eligible for reimbursement under these accounts, personal health and wellness expenses are not. Unfortunately, many individuals mistakenly assume that certain wellness costs can be reimbursed, but these are not categorized as qualified medical expenses under tax law.
The Role of Businesses in Health and Wellness Deductions
Werfel also highlighted that businesses play a significant role in the confusion surrounding health and wellness deductions. Companies that offer health-related benefits to their employees must ensure that accurate information is communicated about what expenses are eligible for reimbursement. Incorrectly advising employees on the qualifications for tax-deductible wellness expenditures can lead to misunderstandings and potential financial issues for both businesses and individuals.
What Does the IRS Consider a “Personal Expense”?
The IRS defines a personal health or wellness expense as one that relates to general health maintenance or lifestyle choices rather than to the treatment of a specific medical condition. For example, let’s consider an individual with diabetes who follows a low-carb diet to manage blood sugar levels. If a company advertises that an FSA can be used to buy healthy foods (like low-carb products), and they promise to provide a doctor’s note for a fee to help facilitate reimbursement, this is likely to be problematic.
While it may sound like a convenient way to cover wellness costs, submitting such a claim with a doctor’s note will likely result in a denial. This is because food items, unless directly prescribed for a medical condition, do not qualify as reimbursable medical expenses under current IRS rules.
What Should You Do If You’re Unsure About Health and Wellness Deductions?
If you have any doubts about whether a specific health or wellness purchase qualifies for reimbursement, the IRS recommends reviewing Section 213 of the Internal Revenue Code, which provides detailed information about deductible medical expenses. According to this section, medical care encompasses expenses for diagnosing, treating, or preventing specific diseases or conditions. Conversely, general wellness activities that are not tied to a diagnosed health issue do not meet the criteria for tax-deductible medical expenses.
For further clarity on what qualifies as a medical expense, you can refer to the IRS’ Publication 502 and Tax Topic 502, which provide an overview of allowable medical and dental expenses. If you’re specifically looking for information on HSAs, FSAs, HRAs, or MSAs, Publication 969 offers comprehensive details on these tax-advantaged accounts and their eligibility requirements.
By understanding the IRS guidelines, taxpayers can avoid common pitfalls related to health and wellness deductions and ensure they are making appropriate claims for tax purposes.
