On March 17, 2023, the Internal Revenue Service (IRS) issued new frequently asked questions (FAQs) addressing whether certain costs related to nutrition, wellness, and general health are medical expenses under Sec. 213 of the Internal Revenue Code (Code) that may be paid or reimbursed under an employee’s health savings account (HSA), health flexible spending arrangement (FSA), Archer medical savings account (Archer MSA), or health reimbursement arrangement (HRA).
Generally, Sec. 213 of the Code lets employees take tax deductions for medical care expenses incurred during the taxable year. The IRS defines medical care expenses as “the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body.” This includes costs of medical equipment, supplies, diagnostic devices, and prescribed medicines and drugs. They also include costs associated with legal medical services rendered by medical practitioners. However, Sec. 213 does not let employees deduct for expenses that are merely “beneficial to general health.” This prohibition against general health expense deductions has caused confusion about what specific medical services are covered.
The new FAQs confirm the following qualify as medical care expenses under Sec. 213 of the Code:
- Dental exams;
- Eye exams;
- Physical exams;
- Programs to treat a drug-related substance use disorder;
- Programs to treat an alcohol use disorder;
- Smoking cessation programs;
- Therapy for the treatment of a disease, i.e., a diagnosed mental illness (marital counseling does not qualify);
- Nutritional counseling for a diagnosed disease, i.e., obesity or diabetes (nutritional counsel without a purpose to treat a diagnosed disease does not qualify);
- Weight-loss program for a diagnosed disease, i.e., obesity, diabetes, hypertension, or heart disease (a general weight-loss program does not qualify);
- Gym membership for a prescribed physical therapy plan or for treating a specific diagnosed disease;
- Food or beverages purchased for weight loss or other health reasons only if the item (1) does not satisfy normal nutritional needs, (2) alleviates or treats an illness, and (3) a physician substantiates the use of the item;
- Nonprescription (over-the-counter) drugs, including menstrual care products (insulin does not qualify); and
- Nutritional supplements for treatment of a specific medical condition diagnosed by a physician.
Activities targeted to improve an individual’s general health, even if a doctor recommends such an activity, are not Sec. 213 medical care expenses.
These Sec. 213 FAQs clarify what medical services and products qualify for deduction or reimbursement. Overall, a physician’s prescription or recommendation for a particular medical service or product will be a significant factor in determining whether an employee may deduct or reimburse an expense using tax savings accounts. The same applies to medical services or products treating a physician-diagnosed disease.
If you have questions about which medical costs qualify as tax-deductible expenses, please contact the author or the Jackson Lewis attorney with whom you regularly work.