IRS Alert: Account-Based Plans Cannot Pay for Personal Wellness Expenses

May 15, 2024

The IRS has issued an alert reminding taxpayers and health FSAs, HRAs, HSAs, and MSAs administrators that personal expenses for general health and wellness cannot be deducted or reimbursed under these arrangements because they are not considered expenses for medical care under the Internal Revenue Code. The IRS provided this alert to warn of companies misrepresenting when personal health expenses can be reimbursed by these tax-favored accounts.

What are Qualified Medical Expenses?
Health FSAs, HRAs, HSAs, and MSAs can be used to pay out-of-pocket costs for “qualified medical expenses” that are not covered by a health plan. Qualified medical expenses are the costs associated with diagnosis, cure, mitigation, treatment, or disease prevention, 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. Medical expenses must primarily alleviate or prevent a physical or mental disability or illness. The Code generally allows a deduction for qualified medical expenses paid during the taxable year. Qualified medical expenses that have not been covered by a health plan or used for a deduction are eligible to be paid or reimbursed under an FSA, HRA, HSA, or MSA.

What are NOT Qualified Medical Expenses?
Expenses that are merely beneficial to general health are not “qualified medical expenses.” The IRS maintains a set of FAQs addressing when costs related to nutrition, wellness, and general health are qualified medical expenses. These FAQs clarify that these costs are qualified medical expenses only in narrow circumstances and provide many helpful examples of what is and is not a qualified medical expense. For example, some products, such as fitness trackers, might qualify as a qualified medical expense if a person with a medical condition is advised by their doctor to purchase it. But only in “rare” circumstances can things like food or supplements be considered a medical expense. This reminder is important because some companies misrepresent nutrition, wellness, and general health expenses as “qualified medical expenses” that can be reimbursed by a health FSA, HRA, or HSA. According to the IRS, some companies mistakenly claim that notes from doctors based merely on self-reported health information can convert nonmedical food, wellness, and exercise expenses into qualified medical expenses.

Even though these notes may be written by doctors, the IRS is questioning the validity of their advice and suggesting that these notes may not be adequate. The IRS is encouraging review of the FAQs on medical expenses related to nutrition, wellness, and general health to determine whether a food or wellness expense is a medical expense. See IRS details and requirements for the tax treatment of medical expenses below:

Taxpayers and plan administrators should be careful to follow the rules and be mindful that personal expenditures on things like food for weight loss and other general health expenses will typically not qualify as tax-preferred medical expenses. Please contact your Conner Strong & Buckelew account representative toll-free at 1-877-861-3220 with any questions. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.


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