Health Savings Accounts (HSAs), Flexible Spending Arrangements (FSAs), Archer Medical Savings Accounts (Archer MSA), and Health Reimbursement Arrangements (HRAs) give employees the opportunity to set aside pre-tax income to pay for eligible medical expenses (rather than itemize and file for a tax deduction if expenses exceed 7.5% of qualified income). In mid-March, the Internal Revenue Service (IRS) posted frequently asked questions (FAQs) providing more details about the types of expenses that are eligible for reimbursement through tax-advantaged plans.

As noted on IRS.gov, “These FAQs are part of the National Strategy on Hunger, Nutrition, and Health. The National Strategy provides a roadmap of actions the federal government will take to end hunger and reduce diet-related diseases by 2030.”

In keeping with that line of thinking, the FAQs largely focus on costs related to nutrition, wellness, and general health, addressing questions about the cost of nutritional counseling, weight-loss programs, weight-loss food and drinks, gym memberships, over-the-counter medications, and more.

That does not mean a new pair of expensive running shoes is fair game. IRS.gov says, “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 that are prescribed by a physician. Medical expenses must be primarily to alleviate or prevent a physical or mental disability or illness. They don’t include expenses that are merely beneficial to general health.”

According to the FAQs, dental, eye and physical exams are all considered eligible expenses, as are expenses for alcohol abuse disorder programs and smoking cessation programs. The cost of therapy used to treat a mental illness is eligible, as are costs for nutritional counseling and weight loss programs to treat a specific, physician-diagnosed disease like obesity.

When it comes to the cost of a gym memberships, it’s considered an eligible expense when purchased “for the sole purpose of affecting a structure or function of the body (i.e., prescribed physical therapy for an injury)” or for treating a physician-diagnosed disease (i.e., obesity, hypertension, or heart disease).

More information about eligible expenses can be found in IRS Publication 502, Medical and Dental Expenses, and Tax Topic 502, Medical and Dental Expenses.

These clarifications follow other changes to certain tax-advantaged accounts as the pandemic wound down. For example, certain pandemic relief measures affecting FSAs (like allowing any balance remaining to rollover from one year to the next) ended in 2022, although employers can choose to allow rollovers up to annual limits — $570 for 2023 and $610 for 2024). (Cuadra Deanna. “The pandemic FSA carryover allowance is over: Here’s what’s changed.” November 11, 2022. Benefitnews.com.) Also, the Continuing Appropriations Act of 2023 allows certain telehealth benefits to be provided before a deductible is met under a high deductible health plan, without disqualifying the covered person from being eligible to participate in an HSA. (For more details, visit Fisherphilips.com.)

If you are a plan sponsor, it’s a good idea to let employees know about the clarifications provided in the IRS FAQs, as they could get reimbursed on out-of-pocket expenses that they may have thought were previously excluded.

While you help employees understand how to maximize tax-advantages available in a benefits program, RBT CPAs is here to help you maximize your tax strategy for your business. We’re a leading accounting, tax, audit and business advisory services firm serving the Hudson Valley for over 50 years. To learn more, give us a call. We would love to talk and see what we can do to help you be more successful.

Please note: We are accountants and financial experts – not benefits attorneys. We are providing this content for informational purposes only; it should not be construed as legal advice. If you are considering communicating or making changes to benefits, we strongly encourage you to seek advice from benefits counsel.