On March 6, 2024, the Internal Revenue Service (IRS) released an alert (IR-2024-65) reminding taxpayers that certain personal expenses are not considered medical expenses for purposes of reimbursement under a Health Flexible Spending Arrangement (FSA), Health Savings Account (HSA), or Health Reimbursement Arrangement (HRA).
Medical care expenses that are defined in Section 213(d) of the Internal Revenue Code are generally eligible to be reimbursed under FSAs, HRAs, and HSAs, provided they are for diagnosis, cure, mitigation, treatment, or prevention of disease affecting any part or function of the body. Expenses that are merely beneficial to general health are excluded.
The IRS issued the alert after learning some companies may be misrepresenting expenses related to general health, nutrition, and wellness (e.g., food for weight loss) as eligible for reimbursement from FSAs, HSAs, and HRAs. These companies advertise that a doctor’s letter of necessity, based on self-reporting health information, can convert non-medical food, wellness, and exercise expenses into eligible expenses. The IRS clarified in the alert that these doctor’s notes or letters do not satisfy the requirement that the expenses be related to a diagnosis-specific activity or treatment and do not qualify.
There are risks to plan sponsors for reimbursing non-medical expenses under pretax plans. For example, if an FSA is found to be reimbursing non-medical expenses, the plan can be disqualified as a Section 125 cafeteria plan. If the plan is disqualified, there can be serious consequences for both the employer plan sponsor and employee, leading to tax liabilities and possible penalties and fines. It is important that employer plan sponsors ensure their employees are educated regarding which health expenses are eligible. You can review these IRS FAQs for details and check Eligible Expenses on our website.
Participants in TASC’s FSA, HSA, and HRA Benefit Plans Can Take Advantage of Two Helpful Tools:
- Our partner beneshop™ makes shopping for healthcare items easier and more affordable, with over 4,000 products at more than 20 different retailers. Beneshop helps benefit account dollars go further by finding the lowest cost option on eligible items. Visit beneshop on the web to learn more.
- The TASC mobile app’s Healthcare Expense Lookup tool lets participants search over 20,000 eligible items from their phone while they’re out shopping—they can even pick an item off a shelf and scan the barcode to determine if something is eligible per IRS guidelines to be paid using benefit account funds.
TASC has clients covered with a liability protection package unique to our customers, the TASC Audit Guarantee and Hold Harmless agreement, included with our Universal Benefit Account® offerings. We also stay on top of the latest legislative developments to keep our customers informed about the rules and regulations affecting their benefits. Enter your email address in the left sidebar to subscribe to the TASC Tracker and receive important updates right in your inbox and register for a webinar designed to keep you in the know—and in compliance.
