The IRS has issued a new bulletin, reminding Americans that funds in tax-advantaged medical savings accounts cannot be used to pay for general health and wellness expenses.
The bulletin focuses on medical savings accounts that employers will often sponsor, including flexible spending accounts (FSAs), health reimbursement arrangements (HRAs) and health savings accounts (HSAs), which are funded by employees’ untaxed earnings.
These accounts are only to be used for qualified, legitimate medical expenses, like out-of-pocket costs for medical services, prescription medications and medical hardware.
The IRS said that it had issued the bulletin due to concerns about companies misrepresenting the circumstances under which food and wellness expenses can be paid or reimbursed through one of these accounts.
IRS Commissioner Danny Werfel said some companies behind these plans are employing aggressive marketing tactics that suggest that these accounts can pay or reimburse for things like food for weight loss, “when they don’t qualify as medical expenses.”
Mistaken claims
Some companies mistakenly claim that notes from doctors based merely on self-reported health information can convert non-medical food, wellness and exercise expenses into medical expenses, but this documentation actually doesn’t, according to the IRS.
Such a note would not establish that an otherwise personal expense satisfies the requirement that it be related to a targeted diagnosis-specific activity or treatment; these types of personal expenses do not qualify as medical expenses.
These accounts can only reimburse for services, prescription drugs and hardware that alleviate or prevent a physical or mental defect or illness.
The IRS maintains examples of what these plans can reimburse for, and it has a set of frequently asked questions on its website to address any confusion. The essence of what is reimbursable comes down to whether it’s a qualified medical expense.
Some examples of what HRAs, HSAs and FSAs may or may not cover include:
Gym memberships: You cannot be reimbursed for membership fees if you joined the gym for general health, as it’s not a medical expense.
However, you can seek reimbursement 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 specific disease diagnosed by a physician (such as obesity, hypertension or heart disease).
Food or beverages purchased for weight loss or other health reasons: The costs can be reimbursed only if:
- The food or beverage doesn’t satisfy normal nutritional needs,
- The food or beverage alleviates or treats an illness, and
- The need for the food or beverage is substantiated by a physician.
If any of the three requirements is not met, the cost of food or beverages is not a medical expense.
Exercise for the improvement of general health: If you are paying for swimming, dance or kayaking lessons, the costs cannot be reimbursed by these accounts, even if a doctor recommends it, because these activities are only for the improvement of general health.
Nutritional counseling or a weight-loss program: This is a qualified medical expense only if it treats a specific disease diagnosed by a physician (such as obesity or diabetes).
Smoking cessation: The cost of a smoking cessation program is a qualified medical expense because the program treats a disease (tobacco-use disorder).
The takeaway
If you offer HSAs, HRAs and/or FSAs to your staff, you may want to consider sharing the IRS bulletin with them so they understand what they can seek reimbursement for. If they are being reimbursed for non-medical items and services, they may run afoul of federal tax law.