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IRS Releases Revised Guidance on Medical and Dependent Care Expenses

by | Mar 1, 2022 |

The IRS has released the 2021 editions of Publication 502, “Medical and Dental Expenses” and Publication 503, “Child and Dependent Care Expenses.”

Publication 502 (“Pub. 502”).  Pub. 502 defines “medical expenses,” provides guidance on which medical expenses are deductible under Internal Revenue Code (“Code”) Section 213, and identifies medical expenses that may be reimbursed or paid by health flexible spending accounts, health savings accounts, and health reimbursement accounts.

For individual federal income tax returns, Pub. 502 explains the itemized deduction for medical and dental expenses that is claimed on Schedule A (to IRS Form 1040), including:

  • What expenses, and whose expenses, can be included in calculating the deduction.
  • How to treat reimbursements and calculate the deduction.
  • How to report the deduction on individual tax returns and what to do if an individual sells medical property or receives damages for a personal injury.

Publication 503 (“Pub. 503”). Pub. 503 outlines the requirements that taxpayers must satisfy to claim the dependent care tax credit available under Code Section 21.  Many of these requirements also apply to employer-sponsored dependent care flexible spending accounts.

Updates made in 2021 Publications.  Pub. 502 for 2021 is substantially similar to the 2020 edition.  Relevant dollar amounts have been revised to reflect their inflation-adjusted values.

The 2021 edition of Pub. 503 has been revised to include the temporary provisions of the American Rescue Plan Act of 2021 and the Consolidated Appropriations Act of 2021 (collectively, the “Acts”).  These Acts increased the amount of the credit for child and dependent care expenses.  The Acts also made this credit refundable for taxpayers who meet certain residency requirements, increased the percentage of employment-related expenses for qualifying care considered in calculating the credit, and modified the phaseout of the credit for higher earners.