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IRS Issues 2017 Versions of Publication 502, Publication 503, and Form 2441 for Medical and Dependent Care Expenses

EBIA  

EBIA  

IRS Publication 502 (Medical and Dental Expenses (for 2017 Returns)); IRS Publication 503 (Child and Dependent Care Expenses (for 2017 Returns)); IRS Form 2441 (Child and Dependent Care Expenses) and Instructions (2017)

The IRS has released versions of Publications 502 and 503, Form 2441, and the Form 2441 instructions for the 2017 tax year. Publication 502 describes the medical expenses that are deductible by taxpayers on their 2017 federal income tax returns. Publication 503 explains the requirements that taxpayers must meet to claim the dependent care tax credit (DCTC) under Code § 21 for child and dependent care expenses. Taxpayers file Form 2441 with Form 1040 to determine the amount of their available DCTC, and dependent care assistance program (DCAP) participants must file the form with Form 1040 to support the income exclusion for their DCAP reimbursements.

The 2017 versions of these items are substantially similar to their 2016 counterparts. Relevant dollar amounts (e.g., the standard mileage rate for use of an automobile to obtain medical care) have been revised to reflect their 2017 inflation-adjusted values. In Publication 502, the tuition entry has been revised to clarify that a lump-sum fee that includes education, board, and medical care—without distinguishing which part of the fee results from medical care—is not considered an amount payable for medical care. Also, notes have been added indicating that Congress was considering legislation to reinstate the 7.5% threshold for claiming a medical expense deduction when the publication was printed; this legislation has since been enacted (see our Checkpoint article). Information about the health coverage tax credit has also been updated.

EBIA Comment: Publication 502 provides valuable guidance on what qualifies as a medical expense under Code § 213(d), and thus helps identify the expenses that may be reimbursed or paid by health FSAs, HSAs, or HRAs, or covered on a tax-favored basis under other group health plans (e.g., employer-sponsored medical plans). But Publication 502 should be used with caution in connection with these benefits because it addresses only the expenses that are deductible, and it does not account for differences in the rules for reimbursing expenses under health FSAs, HSAs, or HRAs. Likewise, Publication 503 is written primarily to help taxpayers determine whether expenses qualify for the DCTC. While similar requirements must be met for expenses to be reimbursable under a DCAP, there are some differences, so caution is advised when consulting the publication for this purpose. For example, the DCTC and DCAPs have different rules about the maximum amount and timing of expenses that can be taken into account. For more information, see EBIA’s Cafeteria Plans manual at Sections XX.D.7 (“Other Guidance Regarding What Is Medical Care: Caution Regarding IRS Publication 502”), XX.D.8 (“Distinguishing Deductibility From Reimbursement of Medical Care Expenses (and Why It Matters)”), XXIII.C (“DCAP Participation vs. Claiming the Dependent Care Tax Credit”), XXIV (“What Expenses Can Be Reimbursed Under a DCAP?”), and XXV.H (“Form 2441—Employees Must File It With Their Form 1040”). See also EBIA’s Consumer-Driven Health Care manual at Sections XV.B (“HSA Distributions Are Tax-Free If for Qualified Medical Expenses”) and XXIV.B (“HRAs May Reimburse Only Code § 213(d) Expenses”), EBIA’s Self-Insured Health Plans manual at Section VI.B.1 (“Only Code § 213 Medical Care Receives Favorable Tax Treatment”), and EBIA’s COBRA manual at Section XXXIV (“Special Issues: The Health Coverage Tax Credit (HCTC) and the Special Second COBRA Election Period”).

Contributing Editors: EBIA Staff.

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