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Amounts Paid for COVID-19-Related PPE Qualify as Medical Care Expenses



IRS Announcement 2021-7 (Mar. 26, 2021)

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The IRS has announced that amounts paid for personal protective equipment (PPE) for the primary purpose of preventing the spread of COVID-19—such as masks, hand sanitizer, and sanitizing wipes—are treated as amounts paid for medical care under Code § 213(d) if purchased by an individual for use by that individual, or by the individual’s spouse or dependents. Thus, COVID-19 PPE expenses qualify for tax-free payment or reimbursement from health FSAs, HRAs, HSAs, and Archer MSAs. Alternatively, these expenses—to the extent not paid or reimbursed under one of the foregoing arrangements or any other health plan—are deductible for federal income tax purposes if the taxpayer’s total medical expenses (excluding those compensated for by insurance or otherwise) exceed 7.5% of adjusted gross income.

Under the announcement, if the terms of a group health plan (including a health FSA or HRA) currently provide that expenses for COVID-19 PPE may not be reimbursed, the plan may be amended to allow reimbursement of COVID-19 PPE expenses incurred for any period beginning on or after January 1, 2020. Amendments must be adopted no later than the last day of the first calendar year that begins after the end of the plan year in which the amendment is effective. In addition, retroactive amendments may not be adopted after December 31, 2022, and the plan’s operation must be consistent with the amendment’s terms beginning on the amendment’s effective date.

EBIA Comment: Health FSA and HRA administrators will want to take note of this announcement, which will be welcomed by participants and other stakeholders. While some plans may already have been reimbursing COVID-19 PPE, others may have been waiting for formal guidance on this issue. Whether an amendment is needed will depend on how the plan document is drafted. Either way, plan or operational changes relating to reimbursement of PPE should be communicated to participants. For more information, see EBIA’s Cafeteria Plans manual at Sections XX.D (“Expenses Reimbursed Must Be for Medical Care”) and XX.M (“Table of Common Expenses, Showing Whether They Are for ‘Medical Care’”), which will be updated for this development. See also EBIA’s Consumer-Driven Health Care manual at Sections XV.C (“What Is an HSA-Qualified Medical Expense?”) and XXIV.B (“HRAs May Reimburse Only Code § 213(d) Expenses”). You may also be interested in EBIA’s web-based Health Care Expenses Table, which makes it easy for employers, employees, administrators, and others to determine online what expenses qualify for reimbursement by a health FSA or HRA, or for tax-free distribution from an HSA.

Contributing Editors: EBIA Staff.

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