IRS Reminder: Cost of Home Testing for COVID-19 Is an Eligible Medical Expense

The IRS has issued a reminder that the cost of home testing for COVID-19 is an eligible medical expense that can be paid or reimbursed under health FSAs, HSAs, HRAs, or Archer MSAs. That is because the cost to diagnose COVID-19—like the cost of other diagnostic procedures and devices (see our Checkpoint article)—is an eligible medical expense for tax purposes. The reminder also notes that under recently issued IRS guidance (see our Checkpoint article), the costs of personal protective equipment (PPE) for the primary purpose of preventing the spread of COVID-19 (e.g., masks) are eligible medical expenses that can be paid or reimbursed under these arrangements. Taxpayers are directed to several IRS webpages for additional information.

EBIA Comment: While not mentioned in the IRS’s reminder, other requirements must also be met for an expense to qualify for payment or reimbursement under a health FSA, HSA, HRA, or Archer MSA. For example, in the case of a health FSA or HRA, the plan document must permit the reimbursement. Plans drafted to allow reimbursement of any expense that qualifies as a medical expense under the Code and applicable regulations will automatically permit reimbursement of COVID-19 tests, but plan documents that are more restrictive may need to be amended if the plan sponsor wishes to permit such reimbursements. Regarding PPE, we understand that an IRS official has informally commented that hand sanitizing wipes will qualify under the guidance, but wipes used to disinfect surfaces will not. For more information, see EBIA’s Cafeteria Plans manual at Sections XX.C (“Health FSA Plan Document Must Permit the Reimbursement”), XX.D (“Expenses Reimbursed Must Be for Medical Care”), and XX.M (“Table of Common Expenses, Showing Whether They Are for ‘Medical Care’”). 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.