I’ll Take a Mask and a Tax Benefit, Please

Amounts paid for face masks and other personal protective equipment to prevent the spread of COVID-19 are now eligible to be paid or reimbursed under health flexible spending arrangements (“Health FSAs”), Archer medical savings accounts (“Archer MSAs”), health reimbursement arrangements (“HRAs”), and health savings accounts (“HSAs”).  On March 26, 2021, the IRS issued Announcement 2021-7, which clarified that the purchase of personal protective equipment, such as masks, hand sanitizer, and sanitizing wipes are deductible medical expenses under Section 213(d) of the Internal Revenue Code (the “Code”).

As a result, group health plans, including Health FSAs and HRAs, that permit the reimbursement of all eligible medical expenses under Section 213(d) of the Code may immediately begin reimbursing these expenses.  However, group health plans that prohibit the reimbursement of these expenses require a plan amendment to provide for the reimbursement of these expenses for any period beginning on or after January 1, 2020.  The plan amendment must be adopted no later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective (e.g., an amendment for a plan year ending in 2020 must be adopted by December 31, 2021), and the plan must be operated consistent with the terms of the amendment.  In addition, no amendment with retroactive effect may be adopted after December 31, 2022.

Finally, if a taxpayer’s total medical expenses exceed 7.5 percent of their adjusted gross income, the taxpayer can deduct the amounts spent for personal protective equipment for the taxpayer, his or her spouse, and his or her dependents, provided that the expenses aren’t reimbursed or covered by insurance.  However, if an amount is paid or reimbursed under a Health FSA, Archer MSA, HRA, HSA, or any other health plan, it is not deductible under Section 213(d) of the Code.

If you have any questions, or if you need assistance preparing an amendment or communication to employees, please contact the authors or one of the Miller Johnson employee benefits attorneys.