Every once in a while, the IRS issues a reminder for employers and individuals to be cautious of what expenses can be reimbursed pre-tax as a medical expense. On March 6, 2024, the IRS issued an alert warning people to beware of companies misrepresenting nutrition, wellness, and general health expenses as eligible for pre-tax reimbursements under a health flexible spending arrangement (health FSA), health savings account (HSA), health reimbursement arrangement (HRA), or medical savings account.
According to the IRS alert, some companies claim that a simple doctor’s note based merely on self-reported health information can substantiate a non-medical food, wellness, or exercise expense into a pre-tax medical expense. The IRS debunks these claims by explaining that such doctor’s note would not meet the requirement that the expense be related to a “targeted diagnosis-specific activity or treatment.” In previous IRS guidance, the IRS has explained that these types of expenses only qualify as medical expenses when prescribed or recommended by a physician or medical practitioner as treatment for a specific medical condition diagnosed by a physician. (See IRS Frequently Asked Questions About Medical Expenses Related to Nutrition, Wellness, and General Health.)
The IRS alert provides the following example of a food expenses that would not qualify as a medical expense:
For example: A diabetic, in his attempts to control his blood sugar, decides to eat foods that are lower in carbohydrates. He sees an advertisement from a company stating that he can use pre-tax dollars from his FSA to purchase healthy food if he contacts that company. He contacts the company, who tells him that for a fee, the company will provide him with a ‘doctor’s note’ that he can submit to his FSA to be reimbursed for the cost of food purchased in his attempt to eat healthier. However, when he submits the expense with the ‘doctor’s note’, the claim is denied because food is not a medical expense and plan administrators are wary of claims that could invalidate their plans.
The IRS also cautions employers and individuals that if a health FSA, HSA, HRA, or medical savings account provides a pre-tax reimbursement for a non-medical expense, it is not a qualified plan. If a plan is not qualified, all payments made to taxpayers under the plan, including reimbursements that were for actual medical expenses, are taxable and includable in income.
For more information, see IRS News Release IR-2024-65 (March 6, 2024).