The IRS has posted answers to frequently asked questions focused on whether certain costs related to nutrition, wellness, and general health are medical expenses that may be paid or reimbursed under a health savings account (HSA), health flexible spending arrangement (FSA), Archer medical savings account (Archer MSA) or health reimbursement arrangement (HRA).
Background
These answers focus on section 213 of the Tax Code, which allows a deduction for expenses paid during the taxable year for medical care if certain requirements are met. Realistically, however, most taxpayers no longer deduct medical expenses. To deduct those expenses, you have to itemize on your Schedule A. But most taxpayers don’t itemize—more than 90% of filers in the 2020 tax year opted to claim the standard deduction.
But there’s one more hurdle: the medical expenses floor. You can only deduct your total medical expenses that exceed 7.5% of your adjusted gross income (AGI). For example, if your AGI is $100,000 and you have $10,000 in total medical expenses, you can only deduct $2,500—that’s the difference between your expenses ($10,000) and 7.5% of your AGI ($7,500).
That likely explains why just under 2.4% of taxpayers who filed for the 2020 tax year (the last year for which a complete set of data is available) claimed the medical expense deduction.
But section 213 does something else—it sets out the expenses to be eligible to be paid or reimbursed under an HSA, FSA, Archer MSA, or HRA. You can benefit from those plans even if you don’t itemize, making them far more appealing.
Medical Expenses
For tax purposes, 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. They also include the costs of medicines and drugs prescribed by a physician.
But you expected something like that. Where it gets tricky is this: Medical expenses must be primarily to alleviate or prevent a physical or mental disability or illness. They don’t include costs for medicines or treatments considered merely beneficial to general health.
What’s Covered
That means, as outlined in the FAQs that the costs associated with the following expenses are covered:
- Dental exam
- Eye exam
- Physical exam
- Program to treat a substance or alcohol abuse disorder
- Smoking cessation program
The FAQs also note that some costs associated with the following expenses are covered—with a caveat:
- Therapy—if the therapy is a treatment for a disease, including a diagnosed mental illness (the FAQs distinguish that marital counseling would not qualify)
- Nutritional counseling—if the nutritional counseling treats a specific disease, such as obesity or diabetes, diagnosed by a physician
- Weight-loss program—if the program treats a specific disease diagnosed by a physician, such as obesity, diabetes, hypertension, or heart disease
- Gym membership—if it’s 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 treating a specific disease such as obesity, high blood pressure, or heart disease diagnosed by a physician
- Nutritional supplements—if the supplements are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician.
One type of expenses gets an outright no:
- Cost of exercise for the improvement of general health, such as swimming or dancing lessons
Some expenses get a bit of an explanation. Specifically, the cost of food or beverages purchased for weight loss or other health reasons may be covered if:
- The food or beverage doesn’t satisfy routine nutritional needs.
- The food or beverage alleviates or treats an illness.
- The need for the food or drink is substantiated by a physician.
If any of the three requirements are not met, the cost of food or beverages is not a medical expense.
I’ve written about these particular expenses before—and math is involved. The amount you can deduct as a medical expense is limited to the amount by which the cost of the special food exceeds the cost of a normal diet (Flemming v. Commissioner, T.C. Memo. 1980-583). So, for example, if you buy special flour that costs $7/bag because of Celiac disease and regular flour is $5/bag, you can only include the difference ($2) for purposes of calculating the deduction. In other words, you cannot deduct the cost of all of your special food—you can only deduct the difference between the cost of your special food and your “normal” food. If there is no such “normal” equivalent, however, the entire cost of the product is deductible.
Menstrual care products and nonprescription (over-the-counter) drugs and medicines may also be covered. This is noteworthy since, except for the cost of insulin, the cost of a drug or product that isn’t prescribed by a physician is not a medical expense that is deductible under section 213—making this category a bit of a break from the norm.
Information Available
This information has long been available, tucked inside the Tax Code and various IRS publications. However, the FAQs are an attempt to make the information more accessible as part of the National Strategy on Hunger, Nutrition, and Health. The National Strategy provides a roadmap of the federal government’s actions to end hunger and reduce diet-related diseases by 2030.
Those other resources are, however, still available. Specifically, for more information about HSAs, FSAs, Archer MSAs, and HRAs, see IRS Pub 969.