In IR-2024-65 (the “IR”), the IRS warns taxpayers that some companies are misrepresenting the circumstances under which food and wellness expenses can be paid or reimbursed under health flexible spending arrangements (“health FSA”), health savings accounts, health reimbursement arrangements and medical savings accounts.
Background. To be tax-deductible under Internal Revenue Code (“Code”) Section 213(a), or subject to tax-exempt reimbursement, the cost of an item or service generally must meet the definition of “medical care” expenses under Code Section 213(d). This section defines medical expenses as amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting a structure or function of the body. An expense may qualify only if it is “ primarily” for the prevention or alleviation of a physical or mental defect or illness, and only if the expense would not have been incurred but for the disease or condition.
IR-2024-65. In the IR, IRS Commissioner Danny Werfel says that, “taxpayers should be careful to follow the rules amid some aggressive marketing that suggests personal expenditures on things like food for weight loss qualify for reimbursement when they don’t qualify as medical expenses.”
The IR goes on to say that, “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. 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.”
As an example of the problem, the IR discusses a diabetic who is attempting to control his blood sugar by eating foods that are lower in carbohydrates. He sees an advertisement from a company stating that he can use pre-tax dollars from his health flexible spending arrangement (“health FSA”) to purchase healthy food. He contacts the company, which tells him that, for a fee, the company will provide him with a doctor’s note that he can submit to his health FSA to be reimbursed for the cost of food purchased.
Ominously, the IR goes on to state that, “FSAs and other health spending plans that pay for, or reimburse, non-medical expenses are not qualified plans. If the plan is not qualified, all payments made to taxpayers under the plan, even reimbursements for actual medical expenses, are includible in income.”
To assist taxpayers, the IR provides links to “Frequently Asked Questions” on medical expenses related to nutrition, wellness and general health and Publication 502, Medical and Dental Expenses.
IR-2024-65 is available at: https://www.irs.gov/newsroom/irs-alert-beware-of-companies-misrepresenting-nutrition-wellness-and-general-health-expenses-as-medical-care-for-fsas-hsas-hras-and-msas