Enter to open, tab to navigate, enter to select
COVID-19 PPE Expenses Are Reimbursable Under Health FSAs, HRAs, and HSAs
Practical Law Legal Update w-030-3476 (Approx. 4 pages)
COVID-19 PPE Expenses Are Reimbursable Under Health FSAs, HRAs, and HSAs
by Practical Law Employee Benefits & Executive Compensation
| Published on 29 Mar 2021 • USA (National/Federal) |
The Internal Revenue Service (IRS) has announced that amounts paid by individuals for certain personal protective equipment (PPE), including masks, sanitizing wipes, and hand sanitizer—for the primary purpose of preventing the spread of COVID-19 (the disease that results from SARS-CoV-2)—are treated as expenses incurred for medical care under Internal Revenue Code Section 213(d) (Announcement 2021-7 (Mar. 26, 2021)). Accordingly, these amounts may be deductible under the Code or reimbursed under health flexible spending arrangements (health FSAs), health reimbursement arrangements (HRAs), health savings accounts (HSAs), or Archer medical savings accounts (Archer MSAs).
The IRS has announced that amounts paid by individuals for certain personal protective equipment (PPE), including masks, sanitizing wipes, and hand sanitizer—for the primary purpose of preventing the spread of COVID-19, the disease that results from SARS-CoV-2—are treated as expenses incurred for medical care under Internal Revenue Code Section 213(d) (26 U.S.C. § 213(d)) (Announcement 2021-7 (Mar. 26, 2021); see Practice Note, COVID-19 Compliance for Health and Welfare Plans). As a result, amounts paid by an individual for COVID PPE for use by the individual (or the individual's spouse or dependents) may be deducted under Code Section 213(a) if:
- The individual's total medical expenses are more than 7.5% of adjusted gross income (AGI).
- The amounts are not compensated by insurance or otherwise.
Alternatively, these amounts may be paid or reimbursed under:
- Health flexible spending arrangements (health FSAs) (see Practice Note, Cafeteria Plans: Flexible Spending Arrangements).
- Archer medical savings accounts (Archer MSAs) (see Practice Note, Defined Contribution Health Plans: Overview: Archer Medical Savings Accounts (Archer MSAs)).
However, amounts paid or reimbursed under a health FSA, HRA, HSA, Archer MSA (or any other plan) are not deductible under Code Section 213.
Plan Amendments
Under the IRS's guidance, group health plans (including health FSAs and HRAs) that do not currently permit reimbursement of COVID-19 PPE expenses may be amended to permit reimbursement of COVID-19 PPE expenses incurred on or after January 1, 2020. The following conditions apply concerning these amendments:
- The amendment must be adopted by the last day of the first calendar year beginning after the plan year in which the amendment is effective.
- If the amendment applies retroactively, it must be adopted by December 31, 2022.
- The plan must be operated consistently with the amendment, including during any time between the amendment's effective date and adoption date.
(See Group Health Plans Toolkit.)
An amendment to permit reimbursement of COVID-19 PPE expenses will not result in:
- Reimbursements failing to be excludable from gross income under Code Section 105(b) (26 U.S.C. § 105(b)).
- Plans failing to meet the cafeteria plan requirements under Code Section 125 (26 U.S.C. § 125) (see Practice Note, Cafeteria Plans).
Practical Impact
For health FSAs, Service's guidance adds to the list of permissive changes in the COVID-19 context for which plan amendments may be adopted. Other guidance issued earlier in 2021 addresses provisions under the Consolidated Appropriations Act, 2021 (CAA-21) that temporarily relaxed certain carryover and grace period requirements for health FSAs (see Legal Update, In CAA-21 Guidance, IRS Addresses Health FSA and DCAP Carryovers, Extended Claims Periods, COBRA Interactions, and More).