Purchase of COVID-19 Personal Protective Equipment Treated as Deductible Medical Care by the IRS
In Announcement 2021-7,[1] the IRS has broadened the definition of amounts paid for medical care to include amounts paid for personal protective equipment (PPE).
Examples of PPE given in the Announcement are:
Masks;
Hand sanitizers and
Sanitizing wipes.[2]
If the items were acquired for the primary purpose of preventing the spread of COVID-19, they are referred to in the Announcement as COVID-19 PPE and treated as an amount paid for medical care under IRC §213(d).
Schedule A Itemized Deduction
The Announcement begins by providing that such items are now considered medical expenses for purposes of the Schedule A medical expense deduction:
Therefore, amounts paid by an individual taxpayer for COVID-19 PPE for use by the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependent(s) that are not compensated for by insurance or otherwise are deductible under § 213(a) provided that the taxpayer’s total medical expenses exceed 7.5 percent of adjusted gross income.[3]
FSAs, MSAs, HSAs and HRAs
IRC §213(d)’s definition of medical care is also used to define items that are eligible for reimbursement under a series of tax advantaged medical programs.
COVID-19 PPE is eligible to be reimbursed by:
Health flexible spending arrangements (health FSAs);
Archer medical savings accounts (Archer MSAs);
Health reimbursement arrangements (HRAs); or
Health savings accounts (HSAs).[4]
The Announcement cautions:
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 § 213.[5]
Amendment of Employee Benefit Plans
The Announcement provides guidance to employers looking to amend their employee benefit program for the treatment of COVID-19 PPE:
Group health plans, including health FSAs and HRAs, under the terms of which expenses for COVID-19 PPE may not be reimbursed, may be amended pursuant to this announcement to provide for reimbursements of expenses for COVID-19 PPE incurred for any period beginning on or after January 1, 2020, and such an amendment will not be treated as causing a failure of any reimbursement to be excludable from income under § 105(b) or as causing a § 125 cafeteria plan to fail to meet the requirements of § 125. Group health plans may be amended pursuant to this announcement if the amendment is adopted not later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective, no amendment with retroactive effect is adopted after December 31, 2022, and the plan is operated consistent with the terms of the amendment, including during the period beginning on the effective date of the amendment through the date the amendment is adopted.[6]