The IRS in Internal Revenue Bulletin IR-2023-47 addresses whether certain expenses related to nutrition, wellness, and general health are considered medical expenses under Internal Revenue Code Section 213.
As recognized medical expenses, these expenses could be potentially deductible on an individual’s federal income tax return as medical expenses. To be deductible, the individual would have to itemize (file Schedule A) on his or her federal income tax return and the total amount of out-of-pocket medical and dental expenses would have to exceed 7.5 percent of the individual’s adjusted gross income (AGI).
Most federal employees and retirees do not itemize on their federal income tax returns. They instead take the “standard deduction.” But some employees may benefit from the information provided in IR 2023-47 if they own a Health Savings Account (HSA) or a Health Reimbursement Account (HRA) (employees and retirees), or if as an employee they contribute to a Health Care Flexible Spending Account (HCFSA or FSA). This is because many of the medical expenses discussed in IR-2023-47 qualify as expenses that can be paid or reimbursed tax-free through an HSA, HRA or an HCFSA.
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The following guidance was provided by IRS in IR 2023-47, broken down into specific categories of medical expenses that can be paid or reimbursed through an HSA, HRA or an HCFSA.
Dental exams, eye exams and physical exams
Expenses (such as deductibles, co-payments and co-insurance) for dental, eye and physical exams are considered medical expenses that can be paid or reimbursed by an HSA, HRA, or an HCFSA because they provide a diagnosis of whether a disease or illness is present.
Drug and alcohol treatment and smoking cessation programs
Expenses for programs to treat a drug-related substance abuse disorder, alcohol use disorder, or for smoking cessation can be paid or reimbursed by an HSA, HRA or an HCFSA because they treat a disease; namely, a substance use disorder, alcohol use disorder and tobacco use disorder, respectively.
Therapy, nutritional counseling, and weight loss programming
Expenses for therapy, nutritional counseling and weight loss programs may be paid or reimbursed by an HSA, HRA or an HCFSA if certain conditions are met. The therapy or counseling must be treatment for a disease.
For example, an amount paid for therapy to treat a diagnosed mental illness is a medical expense and therefore payable or reimbursable. But an amount paid for marital counseling is not considered a medical expense and therefore not payable or reimbursable. The cost of nutritional counseling or a weight loss program is considered a medical expense if it treats a specific disease diagnosed by a physician. For example, obesity or diabetes, hypertension, or heart disease.
The cost of a gym membership is considered as a medical expense only if the membership was purchased for the sole purpose of affecting a function or structure of an individual’s body. This could include a prescribed plan for physical therapy to treat an injury.
Another reason the gym membership is purchased is for the purpose of treating a specific disease diagnosed by a physician, such as obesity, hypertension or heart disease. Otherwise, the cost of a gym membership is for the general health of the individual and is therefore not a medical expense, not payable for or reimbursable through an HSA, HRA or an HCFSA.
The cost of exercise for improvement of general health, such as swimming or dancing lessons, is not considered a medical expense, even if recommended by a doctor.
Food or beverages purchased for weight loss
The cost of food or beverages purchased for weight loss or other health reasons is considered a medical expense that can be paid or reimbursed by an HSA, HCFSA or an HRA only if:
(1) The food or beverage does not satisfy normal nutritional needs;
(2) The food or beverages alleviate a or treat an illness; and
(3) The need for the food or beverage is substantiated formally by a physician.
The medical expense is limited to the amount by which the cost of the food or beverage exceeds the cost of a product that satisfies normal nutritional needs. If any of the three requirements is not met, the cost of the food or beverage is not considered a medical expense.
Except for the cost of insulin, the cost of nonprescription or over-the counter (OTC) drugs and medicines is not considered a medical expense that is potentially deductible as an itemized deduction under Internal Revenue Code Section 213. However, the cost of OTC drugs and also menstrual care products may be payable or reimbursable by an HSA, HCFSA, or an HRA.
The cost of nutritional supplements is considered a medical expense that can be paid or reimbursed by an HSA, HCFSA or an HRA only if the supplements are recommended by a physician as treatment for a specific medical condition diagnosed by the physician. Otherwise, the cost of nutritional supplements is not considered a medical expense.
Federal employees and retirees who own an HSA, HRA or an HCFSA (employees only) and who seek additional information as to which medical and dental expense will qualify for payment or reimbursement should download IRS Publication 502 (Medical and Dental Expenses). If they have additional questions, they are advised to talk to a tax professional.